FINANCIAL MARKETS : Blue Chips, Gold Retreat; Dollar Still in Slump
Market Overview
Highlights of Friday’s market activity, compiled from Times staff and wire reports:
* Blue chip stocks closed sharply lower as profit taking brought an abrupt end to the Dow Jones index’s run this week into record territory.
* Long-term Treasury bond yields moved higher in light pre-holiday trading as traders wound up their investment strategies ahead of the long weekend.
* The dollar plunged against the German mark and also declined against other key currencies on continued fallout from the greenback’s tumble against the Japanese yen.
* Gold prices retreated in New York as traders took profits on the metal’s jump of about $6 an ounce on Thursday.
Stocks
Analysts said worries about inflation and the fate of President Clinton’s economic package, which goes to the Senate after winning House approval on Thursday, clipped investors’ enthusiasm ahead of the weekend.
A jump in interest rates also spurred the selloff in stocks, analysts said.
The Dow Jones average, which reached two records this week, dropped 27.40 to 3,527.43.
Declining issues outnumbered gainers by about 11 to 9 on the New York Stock Exchange. Volume on the floor of the Big Board came to 207.83 million shares as of 4 p.m., down from 300.81 million on Thursday.
Economist David Jones of Aubrey G. Laston & Co. said Clinton was pushing up taxes on energy and profits, imposing tougher environmental requirements and adding to Medicare payroll taxes by making all wages subject to taxation--all adding costs to businesses.
“I think what we’re headed for is a moderate dose of stagflation,” he said.
Among those hardest hit by sellers were technology and financial stocks, which had been strong performers recently.
But analysts said they did not believe that the market was in for an extended downturn.
Stock trading slowed and prices improved toward the end of the session. Many market participants left work early to get started on the Memorial Day weekend.
Among the market highlights:
* 3Com Corp. tumbled 11 1/2 to 27 in NASDAQ trading after a pessimistic report from a brokerage house on the company’s outlook. Other losers included SynOptics, off 5 7/8 to 119 1/4, Cisco Systems, off 1 to 54, and Novell, down 1 1/4 to 28 1/4.
* Among financial stocks, J.P. Morgan fell 3/8 to 67 3/8, Wells Fargo was off 2 to 105 5/8, and Fleet Financial Group dipped 7/8 to 30 5/8.
* Among blue chips that were lower in price: Alcoa 1 1/2 to 67 1/2, International Paper 1 1/4 to 66 3/4, Bethlehem Steel 7/8 to 19 3/8, General Electric 1 1/8 to 92 3/4, United Technologies 1 to 52 7/8 and Caterpillar 1 1/8 to 71 5/8.
* USX Corp.’s U.S. Steel unit fell 2 5/8 to 43 after the company said it will set aside money this quarter to cover a $630-million judgment returned by a federal appeals court. The court upheld an antitrust decision against a railroad once owned by USX.
* Sonat Offshore Drilling, a newly issued stock, led the NYSE most active list and finished at 22 1/8.
* Syntex Corp., which rose 1 on Thursday, was also actively traded on the NYSE, finishing 1/4 point higher at 20 5/8. The company on Thursday announced better than expected earnings before a restructuring charge.
Overseas, share prices on the London stock exchange finished lower. The key Financial Times 100-share average closed down 14.6 points to 2,840.7. Frankfurt’s DAX-30 average closed 2.62 points down to 1,631.85, and Tokyo’s 225-share Nikkei average was down 8.94 to 20,843.69.
Credit
After an unusually volatile week dominated by bearish news, the long-term maturities ended better than where they started on Monday as traders shed some of their fears that the Federal Reserve might act soon to tighten monetary policy.
Participants said that could portend some strength in next week’s trading action as the market continues to wrestle over when the central bank will act next.
By day’s end, the yield on the main 30-year bond jumped to 6.98% from 6.924% late Thursday. But that was less than its close last Friday of 7.04%. Its price, which moves in the opposite direction, fell 5/8 point, or about $6.25 per $1,000 in face value.
Participants said the decline was mostly because of the unwinding of strategies by traders unwilling to maintain risky positions during the three-day holiday.
The federal funds rate, the interest on overnight loans between banks, was unchanged from late Thursday’s 3.125%.
Other Markets
Encouraging the dollar’s selloff was a report that U.S. economic growth in the first quarter was much slower than expected, which seemed to reduce the likelihood that interest rates in the United States will soon head higher.
The dollar fell to its fourth straight record low against the yen. But participants said its decline slowed as repeated interventions from central banks on both sides of the Pacific seemed to inject some fear into dollar bears and yen bulls.
The U.S. government reported that the gross domestic product, the sum of all goods and services produced within U.S. borders, registered an anemic 0.9% seasonally adjusted annual growth rate in the first three months of the year.
Profit taking also kept the dollar from falling further.
Meanwhile, in commodities trading, gold prices fell sharply in New York as traders took profits on the metal’s jump of about $6 an ounce Thursday.
On the Commodity Exchange in New York, gold for current delivery fell $3.10 an ounce to $378.30, and silver fell 7.8 cents an ounce to $4.611.
Elsewhere, light, sweet crude oil for July delivery slipped 4 cents to $20.02 a barrel on the New York Mercantile Exchange.
Market Roundup, D4
Selected Interest Rates Averages of daily rates ended Thursday, in percent. Corporate AAA bonds: 7.48% 90-day CDs: 3.15% 3-month Treasury bills: 3.055 Municipal bonds: 5.77% Bank prime rate: 6.00% Federal funds rate: 3.07% Discount rate: 3.00% Source: Federal Reserve Board
