Oil Price Hike Pushes Dow Down 22.56 : Market Overview

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

* An abrupt rise in oil prices slammed stocks by reviving inflation fears. The Dow Jones industrial average fell 22.56 points to 3,364.21. The Dow’s loss would have been about 40 points except for the jump in three oil stocks in the index--Texaco, Exxon and Chevron.

* Bond yields soared as oil surged and as strong consumer confidence and auto sales reports dampened hopes for an interest rate cut. The yield on the Treasury’s 30-year bond shot up to 7.91% from 7.83% Friday.

Stocks

Traders said damage to stocks was limited only by a sharp rally in the shares of major oil and natural gas companies, which rose on expectations that last week’s OPEC production accord will boost energy prices.

“The market would be an unmitigated disaster if you didn’t have strength in oil stocks,” said Philip Orlando, a vice president at Unity Management.

However, other analysts pointed out that broad market indexes--including the small-stock NASDAQ composite index, which contains relatively few significant oil stocks--weren’t hit terribly hard.

The NASDAQ index lost 4.65 points, or 0.8%, to end at 575.65.

Among blue chip indexes, the New York Stock Exchange composite lost 1.34 points, or 0.6%, to 226.86. Though losing stocks topped winners on the NYSE, the ratio was 11 to 6--hardly among the NYSE’s worst days.

Big Board volume came to 197.70 million shares, up from 146.71 million on Friday. Markets were closed Monday for Memorial Day.

Analysts noted that some investors were looking for an excuse to sell, after healthy gains in some key stocks in recent weeks.

“We came into today with a market that’s been acting tired and toppy for several weeks and was vulnerable to a correction,” said Al Goldman at brokerage A. G. Edwards & Sons.

Though some traders warned that the market could sell off more sharply if oil prices stick, they also pointed out that rising energy prices can only be sustained if the world economy continues to recover--which should ultimately boost earnings of many companies, and thus their stock prices.

Among the day’s highlights:

* Among the major oils, Exxon surged 3 1/2 to 64, Texaco climbed 3 to 66 3/4, and Chevron rose 3 5/8 to 72 5/8. Other winners included Royal Dutch Petroleum, up 4 3/8 to 89; British Petroleum, up 2 5/8 to 60 5/8, and Phillips, up 1 1/2 to 26 5/8.

* Oil drillers and other oil-field services stocks also gained. Halliburton rose 5/8 to 29 7/8 after trading as high as 31 1/2. Baker Hughes rose 1 1/8 to 23 3/4, while Schlumberger zoomed 4 to 68 1/2.

* Airline shares were among the biggest losers. Rising oil prices would boost jet fuel costs. AMR, parent of American Airlines, declined 1 3/8 to 64 3/8, Delta fell 1 1/2 to 57 7/8, and UAL, parent of United, tumbled 3 1/4 to 118 3/4.

* Some chemical stocks gave ground. Oil is a major element in the production of many chemicals. Dow Chemical dropped 1 1/8 to 60 1/2, Goodrich sank 3/4 to 52 7/8, and Air Products & Chemicals lost 1 1/8 to 45 7/8.

* Drug stocks came under renewed pressure. Johnson & Johnson lost 2 3/4 to 92 1/8, Syntex fell 2 1/2 to 41 1/8, Lilly dropped 1 1/2 to 65 3/8, and Merck sank 1 1/4 to 49 5/8. Some traders speculated that money managers were selling drug stocks to buy oil stocks.

* Bank stocks were hit by profit taking as interest rates rose. Wells Fargo fell 3 3/8 to 80 5/8, Citicorp dropped 1/2 to 18 1/2, and Chase Manhattan lost 7/8 to 28.

* Among the few non-oil winners, Mattel rose 1 1/4 to 33 1/8. A Salomon Bros. analyst reiterated a buy recommendation and raised earnings estimates slightly, saying major retailers are reporting very strong sales of Barbie dolls.

* Biotech firm Calgene leaped 1 5/8 to 15 3/8. The Davis, Calif.-based firm expects to be the first beneficiary of a new U.S. policy designed to allow genetically engineered food to come to market. Calgene is working on a genetically engineered tomato.

Overseas, the Tokyo stock exchange’s 225-issue Nikkei average shed 350.36 points, or 1.9%, closing at 18,204.64.

London’s Financial Times 100-share average was off 10.4 points at 2,704.6, and Frankfurt’s DAX average ended 4.91 points lower at 1,806.66.

Credit

The price of the Treasury’s 30-year bond sank 1 3/32 points, or $10.94 per $1,000, as its yield soared.

Short-term interest rates also moved sharply higher, with the discount rate on six-month T-bills rising from 3.79% to 3.89%.

The selloff, fueled by inflation worries because of rising oil prices, effectively ended a May bond rally led by hopes that the Federal Reserve would have to lower interest rates to recharge a languid economic recovery.

Besides the negative element of the oil price rise, the Conference Board research group reported Tuesday that consumer confidence in the economy jumped sharply in May, the third straight monthly advance. The index rose 6.5 points from April to 71.6.

Also, the nation’s auto makers reported strong car and truck sales in the most recent 10-day period. Auto sales jumped to a seasonally adjusted annual rate of 6.7 million. Economists had projected a 6-million rate.

Both reports suggested the Fed needn’t move any further to ease credit, because the economy appears increasingly strong.

The federal funds rate, the interest on overnight loans between banks, was quoted at 4%, up from 3.625% late Friday.

Currency

The dollar was mostly lower in lackluster trading after the long holiday weekend.

Traders said the dollar saw little movement despite the positive consumer-confidence and auto sales reports, which should have boosted the greenback.

“We have the hard economic data to support a higher dollar,” said John Nelson, trader at Algemene Bank Nederland in New York. “What we need is a subtle change in perception” by the market that the economy is in fact gaining strength.

In New York, the dollar closed at 129.45 Japanese yen, up from 129.20 Friday. The dollar also traded at 1.612 German marks, down from 1.616 late Friday.

Commodities

Wheat futures prices rose sharply on the Chicago Board of Trade amid fears that overnight frost had damaged the Kansas hard red winter wheat crop.

Wheat for July delivery settled 6.75 cents higher at $3.49 a bushel; July corn rose 3.25 cents to $2.563 a bushel; July oats rose 3.50 cents to $1.365 a bushel; July soybeans climbed 6.75 cents to $6.028 a bushel.

Elsewhere, precious metals failed to follow the oil market higher, despite the inherent inflation threat. Platinum for July delivery rose $1.60 to $366.90 an ounce on the New York Merc.

On New York’s Commodity Exchange, June gold rose just 30 cents to $338.40 an ounce; May silver rose 0.5 cent to $4.09.

Market Roundup, D6