Dow Up 4.69 on Speculation Over Rates

Market Overview

Highlights of Monday’s market activity, compiled from Times staff and wire reports:

* Stocks rose, supported by speculation that the Federal Reserve will decide to lower interest rates another notch at a meeting of its policy-making group today.

* The Dow Jones average of 30 industrials, which gained about 15 points in intra-day trading, closed up 4.69 to 2,919.05.

* Bond prices closed mostly higher as the bond market also looked forward to a possible cut in interest rates.

Stocks

The stock market’s fragile rally stretched into a fourth day, but the day’s meager gains nearly evaporated after International Business Machines’ stock headed downward.

In the broader market, advancing issues outnumbered declines by about 13 to 9 on the New York Stock Exchange.

Big Board volume totaled 173.01 million, down from 194.50 million Friday.

The Federal Reserve Board’s policy-setting Federal Open Market Committee meets today amid evidence that the weak economy may need another round of reduced interest rates. In a report Monday, the Fed said production at the nation’s factories, mines and utilities slumped 0.4% in November as the manufacturing sector of the economy continued a four-month slump.

“We think there is a strong chance” of a cut, said Robert Walberg, an analyst at MMS International. “If not by the end of the meeting, I think we’ll see one by the end of the month.”

The Fed has cut its discount rate by 2 percentage points this year, to 4.5% in the most recent half-point cut Nov. 6. But economists foresee more action today, including possible cuts in the discount rate to 4% and the overnight federal funds rate to 4.25%.

The discount rate is the Fed’s interest charge on loans to member banks; the federal funds rate is the interest banks charge each other on overnight loans.

Still, analysts said any further reduction in interest rates was unlikely to boost stock prices by much.

Hildegard Zagorski, market analyst for Prudential Securities Co., speculated that the rally “kind of fizzled” after investors began selling shares of IBM. The computer maker, which lost 1 1/8 at 86 7/8, has been in investors’ disfavor after unveiling a new round of job cuts and a corporate overhaul.

“The market is a very fragile piece of work at this point and any time one of the so-called leaders shows signs of weakness, people are very quick to take profits,” said Dick Stein, chief technical analyst for MKI Securities Co.

Among the market highlights:

* Systemix, which is engaged in human cell research and immunology, jumped 19 3/4 to 53 after Sandoz said it is buying 60% of its common stock for $392 million.

* Telefonos de Mexico gained 1 1/4 to 42 1/2. Smith Barney reaffirmed a buy rating on the company, saying the stock is cheap and has good growth prospects.

* Commonwealth Edison dropped 2 1/8 to 39 3/4 on news that the Illinois Supreme Court reversed a $750-million rate increase granted to the utility.

* BMC Software, which fell 9 1/2 Friday, regained 1 3/4 to 59 1/4. Alex. Brown repeated a buy rating on the company, traders said.

* Union Carbide rose 2 3/8 to 19 3/4 after it announced the spinoff of its gas unit and asset sales.

* Genelabs Technology added 1 1/4 to 8 7/8. It said results of clinical tests of its anti-AIDS drug, GLQ223, show the drug to be safe and clinically well tolerated.

* BankAmerica fell 1 3/4 to 33 1/4. Mabon Securities lowered its rating to unattractive from neutral because of concern about the weakened condition of the California real estate market.

Overseas, share prices gained moderately in light trading on the Tokyo Stock Exchange. The 225-share Nikkei average closed up 81.77 points at 22,836.67.

Stocks fell in London in part because of an industry group survey showing that manufacturers saw no sign of a recovery early in 1992. The Financial Times 100-share average finished 10.8 points lower at 2,440.8.

In Frankfurt, the DAX average finished 5.45 points lower at 1,552.89.

Credit

The price of the Treasury’s bellwether 30-year bond rose 5/32 point, or $1.56 per $1,000 in face amount. Its yield, which falls when prices rise, was 7.75%, down from 7.77% late Friday.

Long-term bonds were also boosted by comments from Deputy Treasury Secretary John Robson, who repeated earlier comments from Treasury officials that the agency may cut back on its sales of 30-year bonds.

The bond market had little reaction to the industrial production report.

The federal funds rate, the interest on overnight loans between banks, was 4.625%, up from 4% late Friday.

Currency

The dollar lost ground in extremely light pre-holiday trading as interest rates continued to work against the U.S. currency.

Analysts said the dollar was depressed by the industrial production report, which they believe will help spur the Fed to lower interest rates.

Lower interest rates are bearish for the dollar because they lessen the value of dollar-denominated securities.

In New York, the dollar fell to 1.575 German marks from 1.589 on Friday and to 128.40 Japanese yen from 129.00 on Friday. The British pound rose to $1.825 from $1.816 late Friday.

Commodities

Wheat futures prices surged to a 21-month high on the Chicago Board of Trade on predictions the Soviet Union soon will bid for 1 million metric tons of U.S. wheat at subsidized prices.

Corn futures finished narrowly mixed in Chicago, while soybean futures settled modestly lower.

On other commodity markets, oil, precious metal, livestock and meat futures fell.

Wheat for delivery in December jumped 11 cents to $4.02 3/4 a bushel, the highest settlement of a near-term contract since March 21, 1990.