Lack of Rate Cut Pushes Dow Down 4.15 : Market Overview

Blue chip stocks eased slightly after the Federal Reserve apparently decided against cutting interest rates further. The Dow Jones industrial average lost 4.15 points to 3,393.84 after crossing 3,400 late in the session.

* Treasury bond yields inched up on the Fed’s lack of action.

Stocks

Traders took a cautious approach for much of the day, as they waited for signs of whether the Federal Reserve would lower interest rates in the wake of recent signs of erratic growth in the economy.

Speculation about a rate cut swelled Tuesday after the Commerce Department reported a 17% plunge in April housing starts, leading analysts to question the stamina of the recovery.

But by late Wednesday, there was no sign that a meeting of Fed policy-makers in Washington would produce lower rates immediately. The Dow industrials, after rising to their 20th record high of the year Tuesday--3,397.99--backed off slightly by the close.

Nonetheless, analysts said most investors continue to believe that the Fed will soon cut its target for the federal funds rate--the rate banks charge each other on overnight loans--to ensure that the recovery continues.

In the broader market, losers held a narrow edge on gainers on the New York Stock Exchange, 864 to 819. Big Board volume totaled 198.76 million shares, compared to 189.40 million Tuesday.

Smaller stocks were stronger: The NASDAQ composite index rose 2.24 points to 580.29.

Among market highlights:

* Some home builders’ stocks rebounded after being pummeled in recent weeks in advance of the poor April housing starts report. Presley gained 5/8 to 10 1/4, Ryland rose 1 1/4 to 22 1/4, Lennar added 1 to 21 1/8, and Del Webb was up 1 to 19.

* Financial services stocks, which would benefit from lower interest rates, were mostly higher. BankAmerica rose 1 to 48 7/8, Merrill Lynch added 1 1/8 to 47 3/4, Countrywide Credit gained 7/8 to 33 5/8, and Downey Savings rose 1/2 to 15 1/4.

* Among blue chips, Disney lost 1 1/2 to 39 3/8 after gaining early this week on its 4-for-1 stock split. A Salomon Bros. analyst advised investors to take profits. Meanwhile, McDonald’s jumped 1 3/8 to 46 1/8, a 52-week high. C. J. Lawrence repeated a buy rating, saying it believes that McDonald’s restaurants will benefit from an expected increase in travel this summer.

* Many investors continued to focus on industrial issues that should benefit from a stronger economy. Cummins Engine, which makes diesel engines, leaped 2 1/2 to 71 1/2 on a report of surging truck sales. Other industrial winners included Caterpillar, up 1 to 57 7/8; Emerson Electric, up 1 3/8 to 50 3/4, and Kennametal, up 1/2 to 33 1/8.

Elsewhere, GM slipped 1/4 to 39 as it sold $2 billion in new stock at 39 a share. Trading volume reached 17 million. Analysts termed the stock sale a success.

* Some beleaguered health care stocks came under renewed pressure. Hospital firm Humana plunged 2 1/4 to 23 after it said its third-quarter results will likely be lower than a year ago. It cited deteriorating profit margins as hospital admissions decline.

Also, Johnson & Johnson dropped 1 1/8 to 94 1/8 after a prominent cancer expert alleged that the company is “unconscionably” overcharging for a colon-cancer drug. Among other drug stocks, Bristol-Myers Squibb slid 1 to 73 7/8 after brokerage Alex. Brown & Sons lowered its earnings estimates slightly for 1992 and ’93.

* Technology stocks rebounded from recent weakness. Adobe Systems rose 1 1/4 to 46 3/4, Hewlett-Packard added 1 1/8 to 75 1/4, Microsoft gained 2 1/4 to 116 3/4, and Western Digital was up 1/2 to 5 1/8.

In overseas trading, Tokyo’s Nikkei average gave ground again, losing 79.18 points to 18,674.93.

In Frankfurt, however, the market surged to a 21-month high. The DAX index jumped 24.24 points to 1,787.50, its best close since Aug. 3, 1990. London followed Frankfurt higher, as the Financial Times 100-share average rose 11.3 points to 2,711.9.

Hong Kong continued to best them all: The Hang Seng index rocketed 111.52 points, or 2%, to 5,753.76 on speculation about an interest rate cut, and on expectations that some Thai money will be diverted from that country to Hong Kong because of civil unrest in Thailand.

Credit

Some traders sold Treasury bonds after the Federal Reserve declined to cut the fed funds rate, said Michael Moran, economist with Daiwa Securities America.

But the selloff wasn’t significant, and bond yields rose only slightly: The yield on the 30-year T-bond rose to 7.80% from 7.77%, as its price dipped $5 per $1,000.

Speculation that the central bank would tinker with rates had driven bond yields sharply lower Tuesday, on news that April housing starts had plunged.

Despite the Fed’s inaction Wednesday, traders said most bond investors continue to expect a rate cut in the near future.

The federal funds rate, the interest on overnight loans between banks, was unchanged at 3.75%.

Currency

The dollar settled marginally higher in technical trading.

Although reversing its downward spiral of the past few sessions, it held to a narrow range, dealers said. There was little news to move the market.

Some dealers bought dollars when the Fed opted against intervening to push interest rates lower. “There was one spurt of buying all day,” said Kevin Lawrie, trader at Bank of Boston.

In New York, the dollar rose to 1.601 German marks and 129.50 Japanese yen, from 1.591 marks and 129.10 yen Tuesday.

Commodities

Soybean futures rose on the Chicago Board of Trade as an early spurt of selling eased in anticipation of the National Weather Service’s six- to 10-day outlook.

The soybean market also was boosted by the anticipated release of a U.S. Agriculture Department listing of Russian export credits.

Soybeans for July settled 1.50 cents higher at $6.09 a bushel.

Soybean prices retreated in early trading in follow-through selling from Tuesday’s decline, which was triggered by forecasts of a return to normal temperatures and rainfall in the Midwest next week.

However, prices bounced back after a midday forecast calling for drier conditions than those forecast by private weather services.

Meanwhile, bargain hunting by some traders helped lift gold and silver on New York’s Comex. Gold for June was 20 cents higher at $338 an ounce, and silver for May delivery was 1 cent higher at $4.08.

Crude oil futures gained slightly, with light, sweet crude for July delivery rising 5 cents to $20.40 a barrel on New York’s Merc.

Market Roundup, D8