Sweden Boosts Rates to 75%; Dow Inches Up : Market Overview
Highlights of Wednesday’s market activities, compiled from Times staff and news service reports:
* European currency markets were stunned by Sweden’s move to raise short-term interest rates to 75% from 24%, in a desperate bid to support its currency. The dollar gained indirectly from the move as the German mark fell.
* U.S. stocks staged a mild afternoon upturn, recouping some of the ground lost in Tuesday’s broad decline. The Dow Jones industrials added 10.80 points to 3,271.39.
Currency
Sweden’s central bank roiled world currency markets by boosting a key short-term interest rate to an astounding 75%.
The surprise move showed Sweden’s determination to defend its currency, the krona, against the lure of high interest rates in Germany and other European nations.
After neighboring Finland gave up the fight on Tuesday and decided to allow its currency’s exchange rate to float freely, investors feared that Sweden would follow and devalue the krona.
Analysts described the 51-percentage point rate increase by Sweden’s Riksbank as a last attempt to avoid devaluation. On Tuesday, the Riksbank boosted the short-term rate from 16% to 24%.
The rate governs banks’ deposits and borrowing with the Riksbank and indirectly affects rates Swedish banks pay investors.
Bengt Dennis, Riksbank chief, said capital began flowing back into the country after Wednesday’s rate increase. He also said Sweden was borrowing 16 billion of the European Currency Units, worth $23.5 billion, to support the krona in currency markets.
Sweden has seen domestic and foreign investors increasingly abandon Swedish investments in favor of bonds in other European countries, especially Germany. The United States has faced a similar but less grave problem.
The key problem for all of Europe has been Germany’s unwillingness to cut interest rates. By keeping rates high, the Germans automatically draw new investment and bolster their currency.
Scandinavia has been particularly susceptible to rate competition because investors question the Nordic countries’ ability to transform their high-cost, cradle-to-grave welfare states into economies that can compete in the world.
The Riksbank’s Dennis insisted Wednesday that he won’t hesitate to raise rates even more if necessary, to stop money from leaving Sweden. “If we fail, it will cost Swedish households, communities and companies dearly,” he said.
The dollar, meanwhile, benefited indirectly from Sweden’s move, as traders sold German marks.
In New York, the dollar jumped to 1.414 German marks from 1.395 Tuesday, and to 123.13 Japanese yen from 122.85.
Stocks
Stocks stabilized after Tuesday’s broad decline, when the Dow industrials fell 21.34 points.
On the New York Stock Exchange, advancing issues beat losers by about 5 to 4. Volume came to 178.80 million shares.
Analysts said most investors remain apprehensive about the economy, but that strength in the dollar helped stocks somewhat on Wednesday. If the dollar continues to gain, the Federal Reserve will find it easier to lower interest rates further to help the economy.
Among the market highlights:
* Tech stocks led the rally. The group has been surging lately in part on excitement about new products to be unveiled this fall.
Intel rose 2 to 63, Apple gained 1 1/4 to 49, Sun Microsystems jumped 1 5/8 to 29 7/8, Digital Equipment surged 2 1/8 to 37 3/4, and Texas Instruments leaped 1 3/4 to 42 7/8.
But satellite communications firm Datron Systems tumbled 2 1/4 to 8 3/4. The Simi Valley company said it expects to record a loss in the current quarter.
* Health maintenance organization shares were strong. Some analysts believe that the companies would be major winners under Democratic Presidential nominee Bill Clinton’s health care reforms. U.S. Healthcare jumped 1 5/8 to 59 1/4, PacifiCare gained 2 to 27, and FHP International rose 1 1/2 to 19.
* Financial stocks stabilized after Tuesday’s big losses, caused by worries over the slow economy. BankAmerica added 1/2 to 43 3/8, and First Chicago was unchanged at 29 7/8. But Federal National Mortgage eased 3/8 to 64 3/8, and Golden West Financial lost 1/2 to 38 5/8.
* McDonald’s rose 3/8 to 43 5/8. The company said it was optimistic about its profit-growth prospects for the second half of the year.
Also, Campbell Soup climbed 2 1/4 to 39 1/4 after posting a 33% quarterly earnings gain.
* On the downside, Structural Dynamics plunged 4 5/8 to 10 1/2. The software firm said current-quarter profit will fall short of estimates.
Another big loser was British industrial minerals firm English China Clays, down 5 5/8 to 22 5/8 after reporting lower earnings.
* Telmex sank 1 5/8 to 43 1/4 as the Mexico City market stumbled on the heels of another rise in Mexican interest rates. The Bolsa index plummeted 43.89 points or 3.2% to 1,325.96, the lowest close this year.
Overseas, Sweden’s interest-rate shocker helped propel another broad European selloff. Sweden’s I-Topps blue chip index sank 19.52 points, or 2.6%, to 718.53.
In London, the Financial Times 100 index slid 10.2 points to 2,327.5. Frankfurt’s DAX index dropped 19.29 points to 1,525.26.
In Tokyo, however, stocks ended sharply higher and at a five-month high, jumping in late afternoon on futures-linked buying. The Nikkei average surged 593.13 points, or 3.2%, to 18,875.55.
Credit
Interest rates closed little changed, as bond buyers took a breather after the recent rally.
The price of the Treasury’s main 30-year bond was down 5/32 point, or $1.56 per $1,000. Its yield was 7.23%, up from 7.22% Tuesday.
The federal funds rate fell to 3.00% from 3.125% Tuesday.
Commodities
Violence in South Africa touched off early rallies in platinum, but traders at the New York Merc concluded that the supply of the metal isn’t threatened.
The October platinum contract gained $4.80 an ounce in early dealings but closed up just 20 cents to $361.90 an ounce.
On New York’s Comex, near-term gold lost 30 cents and settled at $342.20 an ounce, while silver eased 0.2 cent to $3.71.
Light, sweet crude oil for October was up 3 cents at $21.99 a barrel on the New York Merc.
