Weak Factory Report Keeps Dow Reined In : Market Overview
Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:
* The stock market posted scattered gains for the second straight session. The Dow Jones average rose 5.08 to 3,290.70 after edging up 4.82 points Tuesday.
* The dollar lost ground again, depressed by a durable goods report that called into question the strength of the U.S. recovery.
* A plea by President Bush for lower interest rates plus the surprisingly weak durable goods orders pushed bond prices higher.
Stocks
Heavy trading in tobacco stocks following a long-awaited Supreme Court decision on cigarette liability was Wall Street’s most compelling feature in an otherwise listless session.
Stocks ended with meager gains on more evidence of a sputtering recovery.
The Commerce Department reported that factory orders for durable goods fell 2.4% in May. Analysts had projected a small increase.
The news was a setback to investors’ hopes for a more sustained recovery.
Analysts said the report aggravated worries that second-quarter corporate earnings reports will be less upbeat than presumed.
Advancing issues narrowly outnumbered decliners on the New York Stock Exchange. Big Board volume was 194.35 million shares, up from 190.85 million a day earlier.
Among the market highlights:
* Philip Morris rose 5/8 to 73 3/4, RJR Nabisco dropped 1/8 to 9 3/8 and American Brands was down 1/8 at 45 3/8, all in active trading, after the Supreme Court ruled that ailing smokers may sue tobacco companies under state laws.
The court decision appeared to open up extensive liability dangers for cigarette manufacturers, but the stocks didn’t encounter the degree of selling pressure many had expected.
* Among the day’s other volume leaders, International Business Machines rose 1 3/4 to 97 5/8. The Wall Street Journal reported on recent insider buying of the stock.
* Cooper Tire & Rubber rose 1 1/8 to 47. Lehman Bros. boosted its rating on the company to neutral from under-perform.
* Stride Rite tumbled 4 5/8 to 20 3/8. The shoe company’s second-quarter earnings fell a bit short of analysts’ estimates, and it said it was taking a cautious view of prospects for the remainder of the fiscal year.
* Gitano Group fell 1 3/8 to 5 1/2. The company said it would have a loss for the second quarter because of increased interest expenses related to a restructuring.
* Among paper firms, International Paper rose 1 1/8 to 68 1/2, Weyerhaeuser added 1 3/8 to 34 3/8, Georgia Pacific rose 1 1/4 to 59 1/4 and Stone Container rose 1 5/8 to 24 3/4.
* Perfumania, traded on the NASDAQ market, plunged 4 5/8 to 8 5/8. The company said it was investigating allegations that it bought about $3.5 million worth of a counterfeit version of a licensed fragrance product from a foreign supplier.
In overseas trading, stocks closed at a 68-month low on the Tokyo Stock Exchange, with the 225-share Nikkei average falling back below 16,000. The Nikkei ended down 253.32 points, or 1.57%, at 15,853.67.
In London, the Financial Times 100-share average slipped 28 points to 2,532.6.
Frankfurt’s 30-share DAX average eased 2.65 points to 1,768.49.
Credit
The price of the Treasury’s 30-year bond gained 1/4 point, or $2.50 per $1,000 in face amount. Its yield, which falls when prices rise, closed at 7.82%, down from 7.84% Tuesday.
News of economic weakness--like the drop in durable goods orders--boosts bond prices since it increases the likelihood that the Federal Reserve will lower interest rates to stimulate the economy.
In addition to the durables news, President Bush said he would like the Fed to lower rates. He said he believed that the Fed’s concern with fighting inflation by keeping rates where they are may be misplaced.
The federal funds rate, the interest on overnight loans between banks, was 3.75%, up from 3.50% Tuesday.
Currency
The dollar tumbled in heavy trading after release of the durable goods report.
“The dollar really needed to see some good economic reports,” said Mike Faust, an analyst with MMS International. “And when we didn’t see it, it set the stage for some pretty solid dollar losses.”
The dollar was further pressured by President Bush’s call for the Federal Reserve to lower interest rates.
Currency traders could have dismissed the comments as election-year politics, but Faust said the market remains particularly sensitive to news that appears negative for the dollar.
Lower interest rates tend to depress the U.S. currency because they make dollar-denominated securities less valuable, thereby reducing investors’ need for dollars.
In New York, the dollar closed at 1.550 German marks and 126.45 Japanese yen, down from 1.566 marks and 127.28 yen Tuesday.
The British pound rose to $1.880 from Tuesday’s $1.863.
Commodities
A shutdown of the U.S. freight rail system contributed to a steep rise in heating oil futures and sent copper futures prices up sharply.
On other commodity markets, precious metal futures fell; grain and soybeans were lower, and livestock and meat futures were mostly lower.
Freight trains stopped rolling after a union struck one rail company and the rest of the industry shut down. Unions accused the companies of a lockout.
The strike contributed to a surge in heating oil futures on the New York Mercantile Exchange, although the rally was rooted mainly in an industry report Tuesday showing U.S. stocks of petroleum distillates nearly 6% below the five-year average, said analyst James Steel of Refco Inc. in New York. Steel said heating oil jumped because the rail stoppage means that more goods will be shipped by trucks, which are heavy users of diesel fuel, a relative of heating oil.
Light, sweet crude oil for delivery in August settled at $22.89 a barrel, up 30 cents, on the New York Mercantile Exchange. Home heating oil for delivery in July settled at 63.66 cents a gallon, up 1.55 cents.
Gold for June delivery dropped $1.70 to $342.80 an ounce and July silver slipped 1 cent to $4.023 an ounce on the Commodity Exchange.
