Rate Rise Saps Dow; Tokyo Hits ’93 High : Market Overview
* Defying a raft of weak economic news, bond yields surged as traders began to worry about the government’s plan for its quarterly auction of long-term bonds in May. An announcement about the auction is due next week.
* A rally in stocks faded as interest rates rose. The Dow industrials closed marginally higher. But Tokyo’s Nikkei index hit a new 1993 high as the yen stabilized.
* Precious metals prices closed mixed after the week’s huge rally.
Credit
More signs of economic weakness early in the day encouraged bond traders, who see an anemic economy as the key to stable or falling interest rates ahead.
The Purchasing Management Assn. of Chicago said its April index of manufacturing activity fell to 54.3 from 60.7 in March.
But that news quickly faded in importance as the market began to focus on next week’s Treasury auction announcement. Yields began to surge as traders dumped bonds, and in afternoon rumors were rife that some major institutions were poised to sell.
By the close the yield on the Treasury’s 30-year bond had jumped to a three-week high of 6.92% from 6.87% on Thursday. A week ago the yield was at 6.79%.
Rates on shorter-term bonds also rose, though less severely.
Next Wednesday, the Treasury will detail its plans for its quarterly sale of three-, 10- and 30-year securities, to take place the following week. Traders have been hoping that the government would cut back on its issuance of 30-year bonds, thus making existing 30-year issues scarcer.
But some analysts said Friday that traders now fear that the Treasury will reduce the 30-year issue only slightly, or not at all.
The bond market’s bigger problem, however, may be an eroding sense of confidence about lower interest rates, analysts say. With gold prices rising lately and the dollar weak--both potential signals of higher inflation--traders are reluctant to bet on lower rates despite the weakening economy.
Stocks
The day’s poor economic news failed to deter investors, who continued to nibble at stocks Friday after the prior week’s mild selloff.
But the Dow industrials’ gain of about 20 points early in the day was cut almost to zero by the close, as bond yields jumped. The Dow added 2.43 points to 3,427.55 for the day, and 13.78 points for the week.
The broader market was stronger Friday, however. Winners topped losers by nearly 2 to 1 on the Big Board on moderate volume.
For the month of April, the Dow’s net loss was 7.56 points. Year-to-date the index is up 126.44 points, or 3.8%.
Smaller stocks looked better Friday, as the NASDAQ composite index rose 2.97 points to 661.42. But year-to-date the NASDAQ index now is down 2.3% after tumbling 4.2% in April.
Meanwhile, Tokyo stocks zoomed to their highest level since early 1992. The Nikkei average rocketed 464.61 points to 20,919.18 after the Group of Seven industrial nations stated their desire for a “stable” currency market.
In recent weeks, a surging yen has undermined Japanese stocks because it makes Japanese exports more expensive. Stock traders now appear to believe the yen will stabilize.
Among Friday’s U.S. market highlights:
* Many industrial issues renewed their rally, despite the gloomy economic reports. Allied-Signal gained 1 3/4 to 65 1/4, Bethlehem Steel rose 1 to 19 5/8, USX-U.S. Steel leaped 1 1/4 to 42 3/4, and Cummins Engine jumped 1 5/8 to 93 3/8.
* Health care issues also were strong across the board, after a key Genentech drug received a boost. Genentech jumped 4 3/4 to 37 1/2, Warner-Lambert added 1 1/8 to 73 1/4, Pfizer gained 7/8 to 68 1/4, Immunex rose 1 1/8 to 50 1/4, and Genzyme was up 1 1/8 to 37.
But California HMO Wellpoint Health tumbled 2 3/8 to 25 1/4.
* McCaw Cellular surged 2 1/4 to 40. It reported a sharply narrowed first-quarter loss. Among other cellular firms, Cellular Inc. rose 1/2 to 13 5/8, and Cellular Communications added 1/2 to 37 3/4.
* On the downside, Chiquita tumbled 1 1/8 to 14 1/2. The banana grower reported higher quarterly earnings but also warned that it might cut its dividend. Rival Dole Food surged 1 3/8 to 35 3/8.
In other overseas markets, London’s FTSE-100 index jumped 26.3 points to 2,813.1. In Frankfurt, the DAX index added 3.25 points to 1,627.19.
Other Markets
The dollar showed no major reaction to the latest statement of support from the G7 industrial nations, which pledged to work for stable currencies.
But the greenback did gain moderately against the German mark, helped by yet another small reduction in German interest rates.
In New York, the dollar closed at 1.585 German marks, up from 1.579 Thursday. Against the yen the dollar was at 111.10, up from Thursday’s 110.95 yen.
Meanwhile, near-term gold eased 20 cents to $356.50 an ounce on New York’s Comex, as its rally stalled. But silver jumped another 3.8 cents to $4.39.
On the New York Merc, June light, sweet crude oil dropped 5 cents to $20.53 a barrel.
