Interest Rate Hopes Push Dow Up 10.06 : Market Overview
Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:
* Rising expectations of an interest rate cut pushed stock prices higher, but the market fell short of a record close as late profit taking chipped away at its gains. The Dow Jones industrial average added 10.06 to close at 3,369.41.
* Treasury bond prices rose as investors showed exceptionally strong demand in the government’s quarterly auction of 10-year notes.
Stocks
Stocks opened on a strong note after substantial gains overnight in the Tokyo and London markets.
Trading slowed to a near standstill as the second leg of the three-part Treasury auction approached around midday.
But activity accelerated when it became apparent that there was strong demand for the $11 billion in 10-year notes the government auctioned.
Advancing issues outnumbered declining ones by about 10 to 7 on the New York Stock Exchange on Big Board volume of 199.33 million shares, up slightly from Tuesday’s 200.55 million.
“People seem to have the attitude of ‘Hey, I don’t know really that I want to be in this market--but I also don’t want to miss the train if it comes,’ ” one trader said.
Rumors that the Federal Reserve may act to cut interest rates after April employment figures are released Friday boosted investor enthusiasm, although many analysts said the effects of such a move already have been figured into the market.
“We have had a lot of anticipation about this additional Fed easing,” said Jack Conlon, managing director at Rothschild Inc. “If you get it, I think it will already be in the market. If you don’t, it will be problematic.”
Strong performances by stocks in London and Tokyo lured U.S. investors back on the buying bandwagon after Tuesday’s selloff.
Tokyo’s 225-share Nikkei average posted a 575.27-point gain, rising 3% to 17,878.66. London’s Financial Times 100-share average rose to 2,698.7, a gain of 36.5 points, and Frankfurt’s 30-share DAX average climbed 10.86 points to 1,743.50.
But the failure of the Dow to break through the psychologically important 3,400 level has some traders talking about a pullback in the near future.
“The market looks like it is starting to struggle a little bit,” said Gregory Nie, market analyst at Kemper Securities. “We have reservations about sustainability. We are looking for a pullback to occur in the May-June period.”
Analysts said such a correction probably is needed before the average can push significantly higher.
“If we have a fairly strong employment number, I think it unlikely that the Fed will act, in which case the market will have to pull back and retrench,” said Robert Walberg, market analyst at MMS International.
Among the market highlights:
* Caesars World added 2 1/2 to 32 1/2. Oppenheimer & Co. repeated a buy rating on the gaming stock despite disappointing earnings projections Tuesday.
* Telefonos de Mexico rose 3/4 to 57 3/8 on heavy volume ahead of the company’s secondary offering expected next week.
* American Barrick edged up 1/2 to 24. Merrill Lynch upgraded the Toronto-based stock to buy from above average.
* Bank shares rose after the bond market rallied. Chemical rose 3/4 to 38 1/2, Bankers Trust added 1 5/8 to 60 3/4, and Chase Manhattan gained 1 1/8 to 28.
* Among active over-the-counter issues, Adaptec rose 3/8 to 18 3/4 after Robertson Stephens raised earnings estimates on the computer company.
The NASDAQ over-the-counter index rose 1.29 points to 589.36.
Credit
The bond market shot up solely because of the robust demand in the auction of $11.1 billion in 10-year Treasury notes, the second leg of the government’s quarterly refunding. Bids in the auction totaled $33.4 billion.
The upbeat auction pushed up bond prices in the secondary market.
The Treasury’s main 30-year bond gained 3/8 point, or $3.75 per $1,000 face amount in price. Its yield fell to 7.96% from 8.00% late Tuesday.
“Most people were looking for this to be the weakest of the three auctions,” said Steven A. Wood, economist at BankAmerica Capital Markets Group in San Francisco.
The results indicated that investors are looking at the economy as much weaker than they did a few weeks ago. Several recent economic statistics have been worse than expected, pointing to a slower-than-expected recovery.
That would lift hopes the Federal Reserve will lower interest rates, which would increase bond prices.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3.625%, down from 3.750% late Tuesday.
Currency
The dollar ended mostly lower on worldwide markets, reflecting concerns about interest rates here and in Germany.
Earl I. Johnson, a vice president at Harris Trust & Co. in Chicago, said currency traders were concerned that Germany’s central bank will raise interest rates because of the difficult wage negotiations between public-sector employees and the government. The Bundesbank’s regular policy-making meeting is today.
Late dollar rates in New York, compared to late Tuesday, included: 1.629 German marks, down from 1.638 marks, and 32.25 Japanese yen, down from 132.90 yen.
The British pound gained ground against the dollar compared to Tuesday’s levels, rising to $1.797, up from $1.786.
Commodities
Coffee futures prices sank to new 19-year lows Wednesday, and analysts said there was little chance of a turnaround soon in the glutted market.
“You’re looking at a market that has increasing supplies every time somebody turns around,” said Melissa Trout, coffee analyst with Cargill Investor Services Inc. in New York.
On other commodity markets, most grain and soybean futures advanced; energy futures were mixed; precious metals were mixed, and livestock and meat futures were mixed.
Wholesale unroasted coffee for May delivery fell 0.85 cent to 58.20 cents a pound, the lowest near-term delivery price since early 1973.
Coffee’s ninth straight daily decline brought the market’s losses to 10.70 cents, or about 15.5%, since April 10, when the International Coffee Organization adjourned a meeting in London with no price-support agreement.
Separately, crude oil futures were barely changed on the New York Mercantile Exchange with light, sweet crude oil for June delivery slipping 3 cents to $20.77 a barrel.
Precious metals were little changed on New York’s Commodity Exchange. June gold slipped 30 cents to $337.50 an ounce; May silver rose 1.2 cents to $4.066 an ounce.
Market Roundup, D8
