No Fed Rate Cut; Bond Yields Jump : Market Overview

* Treasury bond yields rose as the Federal Reserve appeared to take no action to lower interest rates. The yield on the benchmark 30-year Treasury bond jumped to 7.41% from 7.34% Monday.

* U.S. stocks closed mixed, calming after Monday’s sharp swings. The Dow Jones industrials slipped 0.81 point to 3,178.19. Volume remained heavy. European stock markets also stabilized after plunging on Monday.

Credit

In a severe disappointment to bond investors, the Federal Reserve’s policy-making committee met Tuesday but showed no signs of readying another credit-easing step to help the economy.

Speculation about a Fed rate cut had been rampant last week after a series of weak economic reports. But after Tuesday’s Fed meeting, officials told reporters that no announcements were planned.

The federal funds rate--the overnight loan rate among banks, which the Fed can raise or lower through its actions--was quoted at 2.875% late Tuesday, down from 3.125% Monday. But economists said the move did not signal Fed activity.

As expectations of a rate cut diminished through the day, many traders dumped bonds of all maturities. Though the yield on 30-year Treasuries rose most sharply, rates were up across the board. Yields on six-month T-bills rose to 2.93% from 2.88% Monday.

Some economists warned that the market already had built into Treasury yields the expectation that the Fed would ease credit. So the lack of a Fed move could mean rates will rise further.

The Fed’s reticence to cut rates in the face of a poor economy may be election-related, experts said: Fed officials may prefer to wait until after the election to avoid any appearance of political bias.

“They’ve got all the information they need to act,” said John Williams, managing director at Bankers Trust. He held out the hope that a cut may yet come today.

If not, “forget about the Fed until the next employment report. There’s no decisive (economic) statistic until the next employment report” on Nov. 6, Williams said.

Stocks

After a wild session Monday that saw the Dow industrials lose 105 points by midday, then rebound to a mere 21.61-point loss, Tuesday was virtually placid.

Most encouraging to analysts was that the broad market showed strength: Winners topped losers by a 10 to 7 ratio on the New York Stock Exchange, a dramatic improvement from Monday, when losers swamped winners 15 to 4.

NYSE volume Tuesday totaled 203.50 million shares compared to 286.55 million Monday.

Steven Van Brunt, analyst at Nikko Securities, said Tuesday reflected a sense of relief among investors that Monday’s early plunge was beaten back.

“People were encouraged that we didn’t have a panic (Monday),” Van Brunt said.

Wall Street was helped by European markets, which also stabilized after plummeting Monday.

In London, the Financial Times 100 index gained 42.10 points to 2,488.40 after tumbling 103.40 points Monday. In Paris, the CAC-40 index added 1.47 points to 1,612.51 after a 72.30-point rout Monday.

In Frankfurt, the DAX index slipped 4.10 points to 1,420.30 after sliding 53.64 points Monday.

In Tokyo, meanwhile, the Nikkei index mostly ignored the turmoil elsewhere, adding 116.60 points to 17,268.10.

Despite the relative calm, analysts noted that the underlying cause of world stock markets’ current gloom remains: Fear of a weakening global economy. Also, in the United States, investors are jittery about the election.

“I think you will see more of this, the market lacking direction, until the election plays out,” said Mary Farrell, analyst at PaineWebber Inc. in New York.

Among Tuesday’s highlights:

* Buyers returned to many industrial issues, still holding out hope for a better economy next year. USX-U.S. Steel rose 1 1/8 to 23 3/4, Briggs & Stratton gained 1 1/4 to 47 3/8, Allied Signal added 1 to 51 5/8, International Paper rose 1 1/8 to 61 5/8, and Alcoa was up 1/2 to 64 5/8.

* Technology issues soared, led by semiconductor firms. Advanced Micro Devices spurred the move after it announced a jump in orders and third-quarter earnings of 51 cents a share compared to 16 cents a year ago. AMD rose 1 1/8 to 12 7/8.

Other semiconductor gainers included National Semiconductor, up 5/8 to 11 7/8; Motorola, up 1 1/8 to 88 5/8; Intel, up 1 7/8 to 65 1/2, and Texas Instruments, up 1 1/8 to 43 1/8.

Among other tech issues, Apple rose 1 1/4 to 44 3/4, AST Research gained 1 3/8 to 14 7/8, Novell rose 1 to 28 1/2, Dell Computer gained 1 5/8 to 29, and Qualcomm leaped 2 to 19 1/4.

* Retailers also were strong. Dayton Hudson rose 1 3/8 to 70 7/8, Dillard jumped 1 1/8 to 37 1/4, and J.C. Penney added 1 1/2 to 71.

* On the downside, drug stocks closed lower. The group has continued to lose allure in recent weeks on worries that the federal government will increasingly put pressure on drug company prices. Pfizer lost 2 1/8 to 72 1/8, Merck fell 1/2 to 42 3/8, Lilly tumbled 1 7/8 to 60 1/8, and Bristol Myers eased 5/8 to 62 3/8.

* Among banks, Citicorp dropped 3/4 to 14 3/4 in heavy trading, a day after it announced the sudden resignation of its president and a disappointing earnings outlook for the third quarter. Also, Wells Fargo lost 1 5/8 to 64 1/2. Fitch Investors Service, a bond-rating firm, said it may downgrade Wells’ debt.

* Among Southland issues, Kaiser Steel Resources rocketed 3 1/4 to 18 1/4 on the NASDAQ market. The firm received the approval of Riverside County to operate a landfill in the county, which Kaiser said could result in $20 million in annual operating profit to the firm.

Currency

The dollar turned mixed in uneventful domestic dealings after rising overseas.

Analysts were focused on the German mark. They said that while the mark has benefited substantially from the currency chaos of the last month, rumors have begun circulating that Germany’s Bundesbank may soon cut interest rates--which would sharply undermine the mark’s appeal.

In New York, the dollar closed at 1.423 marks, up from 1.417 Monday. It also settled at 119.70 Japanese yen, down from 119.75 Monday.

Commodities

Cotton futures prices rose sharply on the New York Cotton Exchange as estimates for this year’s crop size continued to shrink.

Cotton for October surged 1.40 cents to 57.52 cents a pound.

The buying was motivated in part by speculation that the Agriculture Department will lower its 1992 U.S. cotton production estimate in a report due out after the close of trading Thursday because of poor growing weather in the Mississippi Delta and Southeast.

Elsewhere, platinum fell sharply on the New York Merc, reflecting renewed pessimism about the economy. October deliveries sank $4.20 to $363.60 an ounce.

On New York’s Comex, October gold slipped 40 cents to $350.10 an ounce; December silver fell 1.7 cents to $3.76.

Light, sweet crude oil for November delivery rose 4 cents to $21.81 a barrel on the Merc.