Bond Prices, Stocks Fall as Fed Stands Pat : Market Overview

A roundup of Tuesday’s trading, as compiled from Times wire service reports:

* Treasury bond prices tumbled for the third consecutive session after the Federal Reserve again disappointed investors by failing to lower short-term interest rates.

* The weak bond market hurt the stock market, sending the Dow Jones industrial average down 25.94 points to 3,152.25.

Credit

Market participants had hoped that the Fed would lower the discount rate--the lending rate it charges to member banks. When the Fed failed to act during its customary time for market intervention, traders began bidding prices lower.

The price of the Treasury’s main 30-year bond fell 13/16 point, or nearly $8.13 per $1,000 in face amount, extending losses of nearly a point earlier this week. Its yield, which rises when prices fall, was 7.48%, up from 7.41% late Tuesday.

The Fed’s silence is “being regarded in the bond market as a sign that the Fed won’t be easing policy before Election Day,” said William Sullivan, director of money market research at Dean Witter Reynolds Inc.

Several economists said it is likely that the Fed will wait for the October employment report, due Nov. 6, three days after the election.

Last week, traders bid prices up and long-term yields down by 20 basis points in anticipation that the Fed would lower rates at its open-market committee meeting this week.

“You must sense that if the Fed felt there was urgency to communicate to the market that there was some urgency to act, they would have done it today,” Sullivan said. “This suggests that Fed policy will be on hold for a while.”

The disappointment soured the Treasury’s auction Wednesday afternoon of seven-year notes, which was poorly received by dealers.

The average yield on the newly auctioned notes was 6.01%, the lowest level since the government began issuing the securities regularly in 1978. That was down from 6.44% at the last auction on July 8.

The federal funds rate, the interest on overnight loans between banks, rose to 3.000%, up from 2.875% late Tuesday.

Stocks

Declining issues outnumbered advances by about 13 to 9 on the New York Stock Exchange.

Volume on the floor of the Big Board came to about 184.38 million shares, compared to about 203.50 million in the previous session. Traders said the Yom Kippur holiday reduced trading action.

The market meandered in a narrow range in the morning session, with no significant economic news to influence trading in either direction.

Gene Jay Seagle, market analyst for Gruntal Financial Inc., said a new government report showing a 0.6% decline in August wholesale activity was regarded as old news and didn’t influence trading.

Investors are more interested in economic data that would encourage the Federal Reserve to reduce interest rates as a way to stimulate the economy, he said.

Stock prices began falling after the Treasury Department reported an unusually weak demand at its auction of $9.75 billion of seven-year notes.

“The results of the auction were dismal,” said Hugh Johnson, senior vice president at First Albany Corp.

Among the highlights:

* The most active NYSE issue was Coca-Cola, down 1 1/4 to 37 1/2. John Nelson, analyst for Brown Bros. Harriman & Co., said there were no new developments or announcements to account for the heavy trading. Coca-Cola said recently it expects growth in international sales to remain flat, he said. A Coca-Cola spokeswoman declined comment on the stock’s activity.

* Citicorp fell 1/4 to 14 1/2 in heavy trading. The banking company’s president, Richard Braddock, resigned suddenly on Monday, while the company announced expected third-quarter earnings that were less than analysts’ expectations.

* Transco Energy was up 1/8 to 14 3/4, a day after a new offering of 7 million common shares was priced at $14.62 1/2 cents a share. Transco plans to use the cash from the offering to pare down its debt.

* Marriott was unchanged at 19 1/8 in active dealings, two days after the company said it plans to split its food and hotel divisions into separate companies. Marriott bondholders believe that the plan will hurt their investments.

* Other active issues included Waste Management Inc., down 1/8 to 36 5/8; Merck & Co., unchanged at 42 3/8, and Advanced Micro Devices, down 1/2 to 12 3/8.

* General Motors was down 7/8 to 30, and Ford was off 1 1/4 to 36 1/4 after Salomon Bros. cut its earnings estimates for both auto makers.

In overseas trading, London’s Financial Times 100-share index closed up 28.70 points to 2,517.10, above the important 2,500 level. In Frankfurt, the DAX 30-share index ended 15.75 points higher at 1,436.05. In Tokyo, the 225-share Nikkei average was down 156.36 points, or 0.91%, to 17,111.74.

Currency

The dollar rose against most major currencies, partly in reaction to European shifts in interest rates and a drop in the U.S. bond market.

The dollar rose to 120.40 yen, up from 119.70 late Tuesday in New York. The British pound fell to $1.7095, down from $1.7135 late Tuesday. The dollar bought 1.4490 German marks, up from 1.4265.

Commodities

Copper futures prices sank closer to $1 a pound Wednesday, and analysts predicted that sluggish demand and rising supplies soon would push the metal’s price below that key psychological barrier.

On other commodity markets, precious metals were mixed; oil futures rose; natural gas tumbled; grains and soybeans were mixed, and livestock and meat futures were mixed.

On the Commodity Exchange, gold rose 90 cents to $351 an ounce; October silver slipped 1 cent to $3.723 an ounce.

Light, sweet crude oil for November delivery rose 8 cents to $21.89 a barrel.