Dow Adds 6.48 as Inflation Dips : Market Overview
* The stock market edged upward, squeezing some modest benefit out of favorable news on inflation. The Dow Jones industrial average rose 6.48 points to 3,330.56, to finish the week with a net gain of 0.27 point.
* Treasury bond yields rose slightly despite the good inflation report, as some traders took profits.
* A brief rally in the dollar lost momentum and sent the greenback lower against all major currencies.
Stocks
Analysts said investors viewed the small 0.2% rise in June wholesale prices as favorable for stocks, because it suggests that interest rates can stay low or even fall further.
But the lack of bond market enthusiasm Friday for the inflation report restrained Wall Street somewhat.
Still, advancing issues outnumbered declines by about 3 to 2 on the New York Stock Exchange, where volume came to 164.77 million shares, down from the previous session’s 209.20 million.
Analysts said the market’s strength after Thursday’s 30-point Dow gain was a good sign, especially in the face of the expected onslaught of second-quarter earnings reports next week. Also, the Democrat National Convention begins Monday in New York.
Though many investors remain worried about the economy, they are “stuck in (a) box,” said Robert Caputo, director of research at Swiss Bank Corp.
“On one side, they’re forced into the equity market because of the low competitive return from other instruments. On the other hand, they’re quite fearful there’s not enough momentum to carry stocks higher.”
Among the market highlights:
* Banking stocks continued to rally on expectations that their profit margins will fatten as they slash deposit rates. BankAmerica rose 1 to 43 1/4, Wells Fargo gained 2 1/2 to 75 3/8, J. P. Morgan jumped 1 5/8 to 61 5/8, NationsBank was up 5/8 to 49 7/8, and BancOne rose 1/2 to 46.
Among S&Ls;, Citadel Holding rose 1 1/4 to 25 1/8, Firstfed Financial was up 1 1/4 to 21, and Coast Savings added 3/8 to 11 1/8.
* Mortgage finance companies also were strong. They should benefit if lower interest rates spur home sales. Federal National Mortgage gained 1 to 64 1/2, Countrywide Credit leaped 1 1/2 to 39 5/8, and Federal Home Loan Mortgage was up 1 1/4 to 42 1/8.
* Technology stocks posted broad gains, adding to their recent rally. Conner Peripherals jumped 1 3/8 to 20 3/8 on the heels of a strong earnings report.
Other big winners included Sun Microsystems, up 7/8 to 26 7/8; Digital Equipment, up 1 5/8 to 37 1/2; Dell Computer, up 1 1/4 to 17 1/2; System Software, up 1 3/4 to 27 1/2, and Micropolis, up 1 to 9 1/2.
* Smaller health care services issues picked up new support, helping to fuel a 0.5% rise in the NASDAQ composite index of smaller stocks. Quantum Health leaped 1 1/4 to 24 3/4, Century Medicorp added 1 1/4 to 15 3/4, and Homedco was up 1 1/2 to 24 3/4.
Also in health care, biotech firm Somatogen jumped 3 to 28. U.S. regulators cleared a second stage of trials for its recombinant hemoglobin.
* Shares of shoemakers rallied, drawing strength from Nike after its surprisingly good profit report this week. Nike gained 2 3/8 to 68 1/8, Reebok added 5/8 to 26, and Suave Shoe was up 1 1/4 to 8 1/8.
* On the downside, Sierra Pacific Resources tumbled 5 1/4 to 18 1/2. The holding company for a California-Nevada electric utility cut its quarterly dividend from 46 cents a share to 28 cents a share, citing new capital requirements and lower rates of return allowed for the utility subsidiary.
* General Electric sank 1 3/8 to 76 3/8 on reports that it will pay the government $70 million to settle charges that it diverted U.S. military aid bound for Israel.
In foreign markets, stocks closed lower in Tokyo, with the Nikkei average falling 64.94 points to 16,783.72.
In Frankfurt, the DAX index fell 3.16 points to 1,754.48, while London’s Financial Times 100-share average retreated 7.1 points to finish at 2,490.8.
In Mexico City, the Bolsa index gained 27.10 points to 1,617.35, helped by renewed buying of Telmex, the phone monopoly.
Credit
Bond yields initially tumbled on the release of the government’s June producer price index, which provided new evidence that inflation is in check.
But traders took profits as the session wore on. By the close, the price of the Treasury’s 30-year bond was down $4.38 per $1,000. Its yield rose to 7.63% from 7.60% Thursday.
Some economists expressed concern that while the inflation report overall was good, a rise in energy prices was disturbing. That may have bothered some bondholders.
Still, analysts said many traders were selling government securities for technical reasons, to balance their portfolios after buying large amounts of corporate debt issues recently.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3%, down from 3.75% Thursday.
Currency
The dollar came under heavy selling pressure after a report that the Dutch central bank was raising its reserve requirements.
Some traders initially misinterpreted market news accounts, believing that the Dutch were moving to tighten their money supply, which would increase the guilder’s value against the dollar.
As it turned out, the move by the Dutch central bank was only technical and did not reflect a change in monetary policy, traders said.
Nevertheless, many traders sold dollars and bought German marks on the report, believing that any action by the Dutch would portend higher interest rates in Germany.
In New York, the dollar closed at 1.494 German marks, down from 1.513 on Thursday.
It also fell to 125.25 Japanese yen, down from 125.60.
Commodities
Aggressive selling of gasoline futures helped weaken most energy prices on New York’s Mercantile Exchange.
Light, sweet crude oil for delivery in August settled 12 cents lower at $21.28 cents a barrel.
On New York’s Comex, August gold was 40 cents lower at $349 an ounce, and July silver was 0.6 of a cent lower at $3.92.
