Dow Up 21.96 on Hopes for Interest Rates : Market Overview
Prices soared on Wall Street, carrying the Dow Jones industrial average to its 20th record high of the year after extremely weak housing data raised the prospects of a cut in interest rates.
* The Dow average rose 21.96 points to close at 3,397.99, eclipsing the previous mark of 3,397.58 set May 11.
* In the bond market, government bond prices surged on a renewed belief that the Federal Reserve will lower interest rates. The yield on the key 30-year bond fell to 7.77% from 7.81% late Monday.
Stocks
Stock prices rose broadly after the Commerce Department released a report showing that housing starts plunged 17% last month, the largest drop in eight years. Economists had forecast only a 6.1% decline.
The building sector had been one of the strongest in the fragile economic recovery this year. But the new figures suggested that the overall rebound might now be under pressure, economists said.
The report “raised more discussion of the possibility of a monetary policy easing” by the Fed, said Elliott Platt, director of economic research for Donaldson, Lufkin & Jenrette Securities Inc.
Gloomy economic reports sometimes prod the Fed into lowering interest rates as a way to help the economy.
In fact, the Fed’s Open Market Committee met Tuesday to discuss the economy, and a possible cut in the federal funds rate was believed to be on the group’s agenda.
The federal funds rate is the rate banks charge each other for overnight loans. A cut in this rate would give banks room to make cheaper loans available to their customers and help nurse along the slow economic recovery.
Platt said any possible action by the Fed would not show up until today.
“Speculation has been rising the last three or four days that the Federal Reserve has to ease,” said Ricky Harrington, a technical analyst at Marion Bass Securities. “That’s pretty strong medicine for the stock market.”
Advancing issues outnumbered declines on the New York Stock Exchange by about 7 to 5.
Big Board volume came to 189.40 million shares, up from Monday’s 151.38 million.
The NASDAQ composite average gained 1.52 points to 578.05.
Among the market highlights:
* Blue chips fared well in the edgy market. IBM was up 1 7/8 to 92 1/2, Merck was up 3 3/8 to 149, Coca-Cola was up 7/8 to 45 1/8, and Walt Disney was up 1 1/4 to 40 7/8.
Disney was the most active NYSE issue after a 4-for-1 stock split took effect.
* Limited was up 1/8 to 20 7/8, Kohl’s Corp., a department store concern, was unchanged at 14 after a stock offering Monday, and Glaxo, the pharmaceutical company, was up 3/4 to 27 3/4.
* Boston Scientific Corp., the manufacturer of medical devices, was unchanged at 17 1/8 after a stock offering at a below-expected price.
* British Airways was up 3 5/8 to 55 3/4 after announcing solid first-quarter earnings, Storage Technology was down 7/8 to 35, Conseco Inc. was down 2 1/2 to 28 3/8, and Polaroid Corp. was up 7/8 to 26 after an analyst gave a good report.
In overseas trading, Tokyo stocks closed higher as bargain-hunting and arbitrage buy programs propelled prices. The 225-share Nikkei average ended 311.01 points higher at 18,754.11.
Frankfurt’s 30-share DAX average edged up 4.83 points to finish at 1,763.26, while London’s Financial Times 100-share average ended 3 points lower at 2,700.6.
Credit
The price of the Treasury’s long bond (which moves inversely to the yield) gained 17/32 point, or $5.31 per $1,000 in face amount.
The possibility that the Fed might cut the fed funds rate also sent prices on shorter-term securities sharply higher, with the yield on the government’s three-month bill falling to 3.59%.
The fed funds rate was quoted at 3.75%, down from 3.813% late Monday.
In the secondary market for Treasury bonds, short-term maturities rose 7/32 point to 1/2 point, intermediate-term issues rose 7/16 point to 1/2 point, and long-term issues gained as much as 19/32 point, said Telerate Inc., the financial information service.
The movement of a point equals a change of $10 in the price of a bond with a $1,000 face value.
Currency
The dollar’s selloff continued on world currency markets, spurred by the dramatic decline in U.S. housing starts during April.
The dollar was weakened by overnight selling in foreign markets, and the trend was exacerbated after the housing starts report.
“This gave the (currency) market a little room to move on the downside,” said Randolph Donney, research director at Pegasus Econometric Group in Hoboken, N.J.
In New York, the dollar settled at 129.10 Japanese yen, up from 128.75 yen on Monday.
The dollar fell to 1.591 German marks, down from 1.596 marks the day before.
The British pound rose to $1.839 to buy one pound, more expensive than Monday’s $1.837.
Commodities
Soybean futures prices plunged on the Chicago Board of Trade in a frantic selloff inspired by forecasts for wet weather in the Midwest, where most U.S. soybeans are grown.
Increased rain prospects also prompted sharp drops in grain futures prices in Chicago and cotton futures on the New York Cotton Exchange.
On other markets, oil futures fell; precious metals were mixed, and livestock and meat futures retreated.
Soybeans for July delivery tumbled 16 cents to settle at $6.075 a bushel. The decline erased about half of the gains that had piled up during the past week on forecasts for declining soybean stocks and hot, dry weather in the Midwest.
Separately, light, sweet crude oil for June delivery expired at $20.12 a barrel, off 40 cents a barrel on the New York Mercantile Exchange as OPEC ministers began gathering in Vienna for negotiations over how much oil production should increase in the coming months.
Gold and silver futures retreated on New York’s Commodity Exchange on profit taking after last week’s gains. June gold for July delivery fell $1.10 to $338.20 an ounce, while May silver slipped 0.8 cent to $4.079 an ounce.
Market Roundup, D6
