FINANCIAL MARKETS : New Rate Rise Bolsters Dollar; Stocks Mixed : Market Overview : <i> Highlights of Monday’s market activity</i>
* Interest rates rose for a fourth straight session, led by short-term rates, as inflation paranoia continued to grip the bond market. The Federal Reserve meets today to discuss its policy on rates.
* Major stock indexes eked out small gains, but losing issues outnumbered gainers.
* The dollar rose again, following U.S. interest rates higher.
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Traders demanded the highest yields on short-term Treasury bills since January, as last week’s stronger than expected April inflation reports continued to weigh heavily on the bond market.
The discount rate on newly auctioned three-month T-bills jumped to 3.0% from 2.89% a week ago.
Meanwhile, yields on longer-term securities also rose. The yield on 30-year T-bonds closed at 6.96%, up from 6.93% on Friday and the highest since April 6.
Analysts said investors can’t shake the feeling that surprisingly strong inflation data signal an end to the long decline in interest rates.
“The market is certainly bothered by the fact inflation has gotten worse, and some fear that the Fed might start to contemplate tightening monetary policy,” said William Dudley, a senior economist at Goldman, Sachs & Co.
Fed policy makers, scheduled to meet behind closed doors today, are widely expected to leave interest rates alone for now. But if inflation continues to run closer to a 4% annual rate than a 3% rate, many analysts believe the Fed will have little choice but to push short-term interest rates slightly higher by the end of summer.
Stocks
The market stumbled through another typically listless Monday, as rising interest rates kept most players on the defensive. Financial stocks sank on rate worries.
The Dow Jones industrial average gained 6.92 points to 3,449.93, but the market was weaker than the major indexes suggested. Losers outnumbered winners 1,075 to 840 on the Big Board and 1,053 to 946 on NASDAQ.
NYSE volume slid to 227.58 million shares from 252.91 million Friday.
Analysts said stock investors are concerned about higher interest rates but that there is still widespread faith that rates will remain under control. Also, strong first-quarter corporate earnings reports have bolstered many investors’ belief in a gradually improving economic picture.
Thus, while investors are loath to sink more money into stocks until they get further direction, the market “is not fearful enough to make people sell aggressively,” said Robert Stovall, president at Stovall/21st Advisers.
Meanwhile, Wall Street continues to question President Clinton’s effectiveness in pushing his agenda through Congress. Drug stocks had a good day, reflecting growing doubts about Clinton’s ability to hold the industry to strict price controls.
Among the market highlights:
* In the drug group, Merck rose 1 1/4 to 38 5/8, Abbott Labs added 1 1/8 to 28 1/8, Bristol-Myers gained 1/2 to 59 7/8, Pfizer zipped 1 7/8 to 71 5/8, and Schering-Plough was up 1 1/4 to 66 3/8.
But Southland-based biotech giant Amgen tumbled 3 1/8 to 38 1/2 as Merrill Lynch & Co. downgraded the stock. Analyst Stuart Weisbrod said demand for white blood cell-stimulating drugs such as Amgen’s Neupogen “could grow modestly, if at all, for the next few years, and might even decrease.”
He bases that forecast on doctors’ changing views of chemotherapy treatments. What’s more, he said, Neupogen faces competition from Leukine, a similar but cheaper drug made by Immunex.
* Cable TV stocks got a lift from phone giant US West’s decision to buy a 25% stake in Time Warner’s cable operations. Time Warner jumped 1 1/2 to 35, while Tele-Communications added 1/2 to 18 3/4, Cablevision gained 1 1/4 to 31, and Comcast rose 7/8 to 18 7/8.
* Software stocks renewed their rally as investors hunted for fast-growing companies in a tepid economy. Sybase soared 3 1/4 to 66 7/8, Computer Associates surged 1 1/2 to 28 1/8, Adobe Systems rose 2 1/8 to 63 1/4, and Microsoft added 1 to 86 1/2.
* On the downside, the rise in interest rates hit insurance stocks. Torchmark slid 2 1/4 to 50 3/8, Chubb lost 2 1/4 to 84, CNA dropped 2 to 90 1/8, SunAmerica fell 1 7/8 to 29 1/4, and Travelers lost 5/8 to 27 1/8.
* Among Southland issues, Hollywood Park fell 1 1/4 to 31 3/4 after trading as low as 29 1/2 early in the day on NASDAQ. The track owner said it will issue $100 million in new stock rather than borrow $50 million through bonds, as originally planned. The stock has rocketed from 10 3/4 earlier this year on excitement over the firm’s expansion plans, including a new card club and a new arena.
Overseas, Frankfurt’s DAX index eased 6.63 points to 1,627.88, while London’s FTSE-100 index rose 11.1 points to 2,858.1.
In Tokyo, the Nikkei average gained 91.36 points to 20,565.51.
Other Markets
The dollar advanced, helped by growing belief that U.S. interest rates are headed higher.
Rising rates here give foreign investors new incentive to own U.S. bonds and money market instruments. To make those investments, the buyers must first purchase dollars, thus strengthening the currency.
The dollar was also helped by expectations of a “yes” vote in Denmark’s referendum today on the European unity treaty. Dealers felt relieved of the need to hoard German marks and Swiss francs as a “safe haven” against rejection.
The dollar closed at 111.30 Japanese yen in New York, up from 110.80 Friday. It also rose to 1.613 German marks, up from 1.602.
Meanwhile, gold prices finished mixed after surging last week on inflation concerns. On the Commodity Exchange in New York, gold for current delivery shed 20 cents an ounce to $367.50. Silver for current delivery fell to $4.40 an ounce from $4.44 on Friday.
In energy trading on the New York Mercantile Exchange, light, sweet crude oil for June delivery rose 3 cents to $19.51 a barrel.
