Dow Jones Sputters at 3,400 Barrier : Market Overview
* Blue chip stocks inched lower on last-minute profit taking, and the Dow industrial average once again failed to finish above the 3,400 barrier after spending virtually the entire session over that mark. The Dow lost 1.55 points to close at 3,396.88.
* The dollar settled sharply lower on world currency markets after early waves of aggressive intervention by the Bank of Japan.
Stocks
Traders were encouraged early in the session by an upward revision in first-quarter U.S. gross domestic product, which grew at a 2.4% annual rate rather than the 2% previously estimated.
Continuing Thursday’s rally, the Dow was in positive territory almost all day. But in the final hour of trading, a gain of nearly 20 Dow points evaporated as some traders pocketed profits and stepped aside ahead of the release of more economic data next week.
In the broad market, advancing issues still outnumbered declines by about 4 to 3 on the New York Stock Exchange. Big Board volume came to 204.01 million, against 195.30 million Thursday.
“There’s really no excuse for closing below 3,400,” said Robert Walberg, analyst at MMS International. “It’s a bear sign for the near term.”
The Dow, which first closed above 3,300 April 14, has flirted with 3,400 over the last three weeks but has failed to clear it convincingly.
Nevertheless, there are signs that the broad market is picking up steam. The NASDAQ composite index of smaller stocks showed surprising strength Friday, rising 4.82 points, or 0.8%, to 585.31. Those stocks in particular have suffered steep declines in recent months and are due for at least a minor rebound, some analysts say.
Among the market highlights:
* Industrial stocks that should benefit from a stronger economy returned to the leaders’ list, after taking a back seat to drug and food stocks in Thursday’s rally.
Caterpillar rose 3/4 to 60 3/8, Goodyear added 1 to 71, Monsanto gained 1 1/2 to 65 3/4, steel maker Nucor was up 1 1/4 to 103 1/2, Georgia-Pacific leaped 1 3/8 to 65 1/4, and PPG Industries advanced 1 1/2 to 67 1/4.
* Railroad stocks also surged. Conrail rocketed 3 1/4 to 92 7/8, and CSX rose 1 7/8 to 66 5/8. In addition, airlines rebounded from the steep selloff in recent days related to new fare wars. UAL, parent of United, gained 4 5/8 to 118 3/8, and AMR, parent of American, added 1 5/8 to 63 1/4.
* Food stocks cooled, with the exception of General Mills, which rose 1 1/4 to 63 1/2 after following Kellogg with a cereal price hike.
* Most drug stocks gave back some of Thursday’s gains, but some biotech and medical-instrument firms were hot. Biogen soared 2 to 25 3/4, Gensia surged 3 5/8 to 38 5/8, and Sunrise Medical rose 1 3/4 to 28 1/4.
* Many small-tech stocks also showed new strength. Among Southland issues, computer tape-drive maker Rexon rose 3/4 to 12, communications equipment firm Datron Systems added 1/2 to 10, and print head producer DH Technology was up 1/2 to 14 1/2. But magnetic-systems developer Aura Systems plunged 1 3/8 to 5 3/8. There was no news from the firm.
* Centel and Sprint stabilized after investors showed their disappointment Thursday in plans to merge the two firms. Both stocks ended Friday unchanged, with Centel at 32 and Sprint at 23 1/8.
In overseas trading, Tokyo stocks closed higher, with the Nikkei average pushed up 416.50 points, or 2.3%, to 18,347.75.
Prices held early gains in Frankfurt, with the DAX index rising 9.17 points to 1,803.22. London stocks closed with strong gains, aided by Wall Street’s rally. The Financial Times 100-share average rose 13.4 points to 2,707.6.
Currency
The dollar tumbled as the Bank of Japan dumped dollars.
In New York, the dollar fell to 128.33 Japanese yen from 129.92 at Thursday’s close. It also slid to 1.608 German marks from 1.627.
Analysts said the Bank of Japan entered the currency market overnight during Asian trading hours and sold dollars for Japanese yen. The move was followed by statements that the Japanese authorities might seek an even stronger yen in an effort to address their country’s growing trade surplus.
“The Japanese are coming under a lot of political pressure” to reduce the growing trade imbalance, said Marc Chandler, analyst with the advisory firm IDEA. A stronger yen would make Japanese goods more expensive abroad while making foreign goods cheaper for Japanese consumers.
However, some traders questioned how well further intervention might work in the weeks ahead, noting that many dollar traders in Europe were away on a long holiday weekend. In a thin market, the Bank of Japan’s selling had more impact.
Credit
Interest rates closed lower despite the stronger GDP report.
The price of the Treasury’s main 30-year bond rose 9/32 point, or $2.81 per $1,000. Its yield fell to 7.83% from 7.86% Thursday.
Traders said many bond investors had been expecting an even stronger GDP figure. The weaker number, while still indicating a recovering economy, apparently convinced many bond traders that there still is room for U.S. interest rates to fall in the months ahead.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3.688%, down from 3.813% Thursday.
Commodities
Soybean futures prices leaped more than 10 cents a bushel on the Chicago Board of Trade amid uncertain prospects for rain in the Midwest, where dry weather is hampering crop growth.
Soybeans for July rose 10.5 cents to settle at $6.14 a bushel. The gain extended an upward trend that began a week earlier.
Meanwhile, oil recovered from an early 20-cents-a-barrel loss and finished with a 16-cent gain on the New York Merc, with the July contract at $22.11 a barrel.
On New York’s Comex, June gold slipped 60 cents to $336.40 an ounce, and July silver fell 4.3 cents to $4.02.
