Tokyo Stocks Plunge; Dow Up 4.59 : Market Overview
Highlights of Tuesday’s market activity, compiled from Times staff and wire reports:
* Tokyo’s Nikkei index suffered another major decline, losing 620.14 points, or 4.2%, to 14,309.41--its lowest close since March 12, 1986. Traders blamed more dismal economic expectations.
At midday today, the Nikkei rebounded 137.80 points to 14,447.21 on news of government steps to shore up the market and rumors of other possible steps.
* Uncertainty over President Bush’s plans for the economy kept Wall Street on hold, though blue chips tacked on small gains. The Dow Jones industrial average added 4.59 points to 3,329.48.
* Treasury bond yields dipped on a weak housing report. Gold and the dollar also eased.
Stocks
Tokyo grabbed center stage among world markets Tuesday with its sharp slide, another in a long procession of losses. In the last nine trading days alone, the Nikkei has lost 1,674.23 points.
Tuesday’s slump was driven by general pessimism and fear of another round of poor corporate earnings forecasts, especially in the electronics sector.
Japan’s finance minister, Tsutomu Hata, late Tuesday announced new measures aimed at stabilizing the market. The measures include a temporary suspension of regulations setting minimum dividends for financial institutions and permission for banks to postpone recording losses on stock holdings for the half-year ending in September.
Hata also pleaded with the banks not to sell stocks to raise cash.
Today, the Nihon Keizai newspaper reported that the Bank of Japan and major commercial banks are considering the formation of a company to buy collateralized real estate to help shore up the property market. But a Bank of Japan official denied the report.
Reacting to Tuesday’s proposals, analysts said banks are likely to welcome the package, but that stock prices are not likely to rebound just because accounting rules are changed. Masahiko Tsuyuzaki, chief trader at Tachibana Securities Co., said: “This may be good for banks, but it doesn’t address the main problems of the stock market”--meaning a weakened economy and falling corporate profits.
“The Finance Ministry isn’t wrong for doing this. There just isn’t much they can do,” he said.
Of today’s early gain on the Nikkei, traders were skeptical. “This is just a knee-jerk reaction,” said Baring Securities trader Fred Hochberger. “People are taking a cautious stance to see if the government follows up on their talk. If they don’t, stock prices will fall like a rock again.”
In the United States, investors shrugged off Tokyo’s latest travails. Traders said most big investors seem to be waiting for President Bush’s Thursday speech at the Republican National Convention, where he is expected to unveil new economic incentives.
“I think we’ve got a market that’s marking time waiting to see what the outcome of the Republican convention is going to be,” said Marshall Acuff, portfolio strategist at brokerage Smith Barney.
Wall Street, generally considered to be dominated by Republicans, is eager to hear some new economic-stimulus ideas from Bush, traders said. “The market expects Bush will make this (presidential contest) a real race,” added Richard Hoffman, investment strategist at Cowen & Co.
Despite the Dow’s lethargy, advancing issues outnumbered declines 7 to 6 on the New York Stock Exchange. Volume was 171.75 million shares, up from Monday’s 152.83 million.
Among U.S. market highlights:
* Japanese stocks traded in the U.S. were big losers. Kyocera fell 2 5/8 to 52 1/8, Honda lost 5/8 to 19 1/8, Matsushita sank 2 1/4 to 88 3/4, and Sony dropped 1 1/2 to 28 3/4.
* Hewlett-Packard, already battered in recent weeks when it telegraphed a disappointing earnings report, fell further after releasing the actual numbers. The stock sank 3 3/8 to 57 1/4.
Among other tech issues, Compaq dropped 2 to 27 3/4 after saying that current-quarter results will be hurt by parts shortages for some of its products.
But Dell Computer added 2 1/8 to 25 3/8 on a strong earnings report and a suggestion that analysts’ third-quarter estimates are conservative. Also, System Software jumped 2 5/8 to 26 5/8. It said third-quarter profit rose to 32 cents a share from 22 cents a year ago.
* Kroger tumbled 1 7/8 to 11 5/8 after the eastern supermarket chain said its third-quarter earnings are expected to be close to break-even.
* Toys R Us, which reported good earnings Monday, closed up 1 1/2 at 38 1/2. Brokerage Oppenheimer upgraded its rating on the toy retailer, and several analysts repeated buy recommendations.
* Casino stocks, which have been strong lately, posted fresh gains. Caesars World rose 1 5/8 to 34, Hilton gained 1 to 45 3/8, and Mirage Resorts added 1 1/8 to 25 7/8.
* L.A. Gear rose 3/4 to 12 1/4. The athletic shoe firm’s controlling shareholder, Trefoil Partners, said it will buy 1 million shares to be sold by former Chairman Robert Greenberg.
In Europe, London stocks tumbled in light volume, deflating recent optimism that the market was poised for a recovery from its summer slide. The Financial Times 100-share average fell 21.4 points to 2,354.7.
In Frankfurt, shares more than wiped out two hesitant days of gains. The DAX index dropped 22.20 points to 1,533.22.
Credit
Bonds staged a small rally after the Commerce Department said housing starts fell 2.8% in July.
The news suggested a continuing weak economy in which long-term interest rates could fall further.
The price of the Treasury’s main 30-year bond gained 13/32 point, or $4.06 per $1,000. Its yield eased to 7.33% from 7.36% Monday.
Meanwhile, yields on short-term Treasury bills also fell, bolstered by a meeting of the Federal Reserve’s policy-setting Open Market Committee. While no action was reported, analysts believe that the next likely change in monetary policy will be another cut in short-term interest rates.
However, bond traders noted that many investors are wary of economic incentives that President Bush might unveil on Thursday.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3%, down from 3.5% late Monday.
Currency
The dollar drifted lower against most major currencies in thin trading as investors digested the housing report on the U.S. economy and tensions in the Middle East.
“Housing starts were weaker than the market expected, which keeps interest rate expectations low, and naturally the dollar suffers a little bit,” said Richard Mahoney, vice president of foreign exchange at Citibank.
Tensions between the United States and Iraq also caught traders’ attention, boosting the German mark against most other currencies, Mahoney said.
In New York, the dollar fell to 1.457 marks from 1.464 Monday. Against the Japanese yen the dollar closed at 126.15, up from 125.70.
Commodities
Cocoa futures surged on the New York Coffee, Sugar & Cocoa Exchange on concerns that a drought in West Africa will have an adverse affect on production.
Cocoa futures for December delivery gained $54 to settle at $1,103 per metric ton on reports of the drought’s adverse effect on production in the Ivory Coast, the world’s largest cocoa producer.
Elsewhere, precious metals waffled. August gold was $1.10 lower on New York’s Comex, closing at $335.80 an ounce; September silver was 1 cent lower at $3.78.
September light, sweet crude oil finished 2 cents higher at $21.47 a barrel on the New York Merc.
