FINANCIAL MARKETS : Dow Off 30.45 to 3,492; Bond Yields Rise
Market Overview
* Stock prices moved broadly lower under pressure from rising bond yields and computerized sell programs.
* In bond trading, the yield on the benchmark 30-year bond soared to its highest level in nearly two months as traders continued to react negatively to an unexpected spurt in the nation’s money supply.
* Gold extended its rally in New York amid renewed fears of inflation, bringing gains for the week to about $10 an ounce.
Stocks
Friday capped a volatile week for the stock market that included new closing highs for the Dow average on Wednesday and Thursday.
“I think there was the assumption that after three fairly active, widely fluctuating days, there probably wouldn’t be a follow-through on the up side, and there hasn’t been,” said Eric Miller, market strategist at Donaldson, Lufkin & Jenrette Securities.
The Dow Jones average fell 30.45 to 3,492.83, leaving the blue chip barometer with a 49.82 point gain for the week.
In the broader market, declining issues outnumbered advancing issues by about 13 to 9 on the New York Stock Exchange. Big Board volume totaled 279.12 million shares, down from 289.16 million on Thursday.
Stocks fell in response to the rise in bond yields.
Rising rising bond rates increases corporate financing costs and could dampen profits and stock prices. Higher rates also make stocks less attractive than fixed-income investments.
Stocks were also pushed lower by computerized sell programs, which were active because of expiring stock and index options.
* Gold stocks rose, tracking a rise in gold prices on commodity markets. Battle Mountain Gold rose 1/2 to 9 7/8 in active trading. Newmont Gold advanced 1 1/4 to 44, while ASA Ltd. added 1 7/8 to 50.
* Financial stocks fell as interest rates rose. Citicorp declined 1 1/8 to 27 5/8, and Merrill Lynch lost 2 3/8 to 71 5/8.
* Wal-Mart led the most-actives on the NYSE and fell 1 1/8 to 27 3/8. Friday’s Wall Street Journal said Wal-Mart was changing its marketing slogan to acknowledge stiff competition from other discounters. Separately, Kmart Corp. said it agreed to sell 14 of its warehouses to Sam’s Club, a Wal-Mart division for undisclosed terms.
* AT&T; fell 7/8 to 59 1/8, Pepsico lost 1 to 36 3/4, and Merck declined 1 to 38 1/8.
* Storage Technology declined 3 1/4 to 40 3/4. The stock soared 3 3/8 late Thursday, after the company said it will acquire Amperif Corp. for $83.6 million in stock.
In overseas trading, Frankfurt’s 30-share DAX average slipped 6.82 points to 1,610.59, and London’s Financial Times 100-share average fell 4.6 points to 2,812.2. In Tokyo, the 225-share Nikkei average climbed 227.08 points to 20,557.47.
Credit
Bond traders were selling on expectations--fed by the money supply figures released late Thursday--that the Federal Reserve will tighten interest rates.
The long bond’s yield rose to 7.04% from late Thursday’s 6.99%, its highest yield since hitting 7.06 on April 2. The key bond’s price, which moves inversely to its yield, fell 9/16 point, or $5.63 per $1,000 in face value.
The Fed’s money supply statistics reignited fears that the U.S. economy is heating up and inflation is headed higher.
The Fed reported that M2, one of the most closely followed measures of the money supply, surged a larger than expected $20.1 billion in early May, on top of a large gain the previous week.
Alan Levenson, a money-market economist at UBS Securities Inc., said many market participants believe that the Fed may be forced to push interest rates higher to arrest inflation by the end of the third quarter.
“The interesting feature of today’s selloff is how hard the (Treasury) bill portion of the curve has been hit. The idea that the Fed’s next move will be to tighten and it will happen sometime before the end of the third quarter is perfectly reasonable,” Levenson said.
Many analysts said that the Fed, if it tightens, would likely raise the federal funds rate, the interest on overnight loans between banks, by 0.25 percentage point. The rate was quoted at 3% late Friday, the Fed’s perceived current target, unchanged from Thursday.
Other Markets
On the Commodity Exchange, gold for current delivery rose $3.30 an ounce to $377.50. Silver soared on the Comex, rising 15.5 cents an ounce to $4.669.
Investors have been following prominent financiers and large funds in buying gold and silver, traditional hedges against inflation.
Since falling to $327 a ounce last March, the price of gold has rocketed. Most analysts point to inflation fears, although there has been no solid evidence of rampant inflation.
Precious metals are also more attractive in times of global instability, but the situation in Bosnia has not been a heavy factor in most investors’ thinking.
Elsewhere, most energy futures retreated on the New York Mercantile Exchange amid profit taking from Thursday’s higher close. Light, sweet crude oil for July delivery rose 4 cents on the New York Mercantile Exchange to $19.88 a barrel.
Meanwhile, in currency trading, the dollar rose against leading European currencies as traders broadened their selloff of German marks.
The Japanese yen, meanwhile, strengthened against the dollar on continued speculation that the U.S. government favors a stronger yen as a way to trim America’s large trade deficit with Japan.
In New York, the dollar was quoted at 110.35 Japanese yen, down from late Thursday’s 110.65 yen. The greenback rose to 1.626 German marks, up from 1.617 the day before.
Market Roundup, D4
