Dow Inches Up Amid Interest Concerns : Market Overview

The stock market finished mostly higher, closing a nervous session marked by profit taking and continuing concerns about interest rates.

* The Treasury market held its ground after a powerful rally in the previous session. Yields on most Treasury securities were slightly lower.

* A strong April home sales report helped lift the dollar against major currencies, traders said.

Stocks

With the key May employment report looming on Friday, investors seemed content to take profits after the recent strong gains, analysts said.

The Dow Jones industrial average eked out a gain of 1.11 to close at 3,553.45, just shy of its record high close of 3,554.83 reached last Thursday.

Advancing issues outnumbered decliners by about 9 to 8 on the New York Stock Exchange. Big Board volume hit 295.56 million shares, up from the previous session’s 230.66 million.

After conflicting data gave stock traders few clues about the health of the economy, the market focused on bond prices and corresponding dips and rallies in interest rates.

The Dow Jones traded in a 19-point range throughout the day. The Dow fell at the opening after the Commerce Department reported its index of leading economic indicators rose a disappointing 0.1% in April.

Analysts had hoped for a rise of 0.3% in the index, one of the government’s most important tools in forecasting economic activity. Alan Ackerman, executive vice president at Reich & Co., said the report tended to make investors wary about the economy’s prospects.

The Dow rallied briefly, but then retreated again after Commerce reported an unexpected surge of 22.7% in sales of new single-family houses in April. That is the biggest jump in more than six years and follows a revised 1.5% rise in March.

Stocks followed bonds lower on the housing news. But long-term bonds picked up steam in the afternoon, boosting stocks to finish higher.

The markets are trying to ascertain the direction of the economy--and in turn, interest rates--from the government’s data. Traders know that Federal Reserve governors will use the numbers to decide whether to raise short-term rates.

Among the market highlights:

* Home building stocks rose in reaction to the housing data. Centex finished up 1 1/4 at 33 1/4, Kaufman & Broad rose 1/2 to 17 7/8, and Ryland rose 7/8 to 20 5/8.

* Health care stocks were weaker. Syntex fell 1 1/4 to 19 3/4 on the NYSE after Food and Drug Administration advisory panels recommended against over-the-counter sales of its naproxen pain reliever.

* Big movers among blue chip stocks included Alcoa, up 7/8 to 69 3/8; Minnesota Mining & Manufacturing, up 1 to 115, and IBM, up 1 7/8 to 53 7/8.

* QMS declined 4 1/8 points to 9 3/4 after Prudential Securities downgraded the computer graphics company’s stock.

* J.C. Penney rose 1 3/8 to 48 7/8 after Merrill Lynch named it “focus stock of the week.”

* MCI rose 1 5/8 to 54 3/8 in NASDAQ trading after reports that the company sold a 20% stake to British Telecom North America as part of an alliance to take on rival AT&T.; British Telecom fell 1 1/8 to 65 1/8 on the NYSE. AT&T; finished unchanged at 62.

* Fruit of the Loom slid 4 1/4 to 31 5/8 on the American Stock Exchange. Prudential Securities and Wertheim Schroeder cut their earnings estimates, citing sluggish retail sales and lower prices.

* Tambrands fell 2 3/8 to 42 7/8. The company said its second-quarter earnings will be significantly lower than last year’s 72 cents per share.

Stocks also rose overseas. Tokyo’s 225-share Nikkei average rose 100.29 points to 20,691.70. In Frankfurt, the DAX 30-share average closed 5.32 points higher at 1,625.21, while London’s Financial Times 100-share average ended 13.8 points higher at 2,863.0.

Credit

The relaxation of inflation tensions that pushed bond yields sharply lower on Tuesday helped the market sustain those gains on Wednesday in the face of an unexpected spurt in April new home sales.

The yield on the Treasury’s key 30-year bond pulled back to 6.87% from Monday’s 6.88% as its price, which moves in the opposite direction, rose 1/16, or about 63 cents per $1,000 in face value.

Short-term Treasury prices initially declined after the government released its new home sales report.

The report reignited fears that the Fed may act soon to raise interest rates to try to curb inflation, which can be aggravated by faster economic growth. Higher interest rates can erode the value of existing fixed-income securities.

However, Treasury prices began edging back up after traders took a second glance at the figures. Mark Squitieri, a corporate trader with Clayton Brown & Associates in Chicago, said that many participants decided that a downward revision in March’s home sales helped exaggerate the spurt in April’s figures.

The federal funds rate, the interest on overnight loans between banks, fell to 3.063% from 3.313% late Tuesday.

Other Markets

Despite signs of an uncertain and weak U.S. economy, the government’s report on new home sales surprised the currency markets, analysts said.

“It gave people a little more hope that there would be more opportunities for dollar trading on the upside,” said Rick Porter, manager of corporate treasury services at Bank Brussels Lambert in New York.

The housing report lifted the dollar early in the session, but trading waned later in the day, said Al Jirkovsky, a managing director at Continental Bank in Chicago.

Other factors influencing trading included Treasury Secretary Lloyd Bentsen’s comments that the United States is not seeking to increase the value of the Japanese yen against the dollar. There has been speculation that the United States wanted a stronger yen to increase sales of U.S. products in Japan.

Bentsen’s comments, delivered in Paris at the Organization for Economic Cooperation and Development, were viewed as a restatement of existing policies, Porter said.

As a result, the dollar closed unchanged from Tuesday’s levels at 107.15 Japanese yen in New York dealings.

The greenback settled at 1.598 German marks, up from Tuesday’s 1.587 marks.

The British pound was quoted at $1.541 in New York, down from $1.551 late Tuesday.

In commodities trading, gold prices declined slightly. On the New York Commodity Exchange, gold bullion for current delivery dropped 30 cents to close at $369.20 an ounce. Silver fell 3.7 cents to $4.368 an ounce.

Profit taking hit energy futures on the New York Mercantile Exchange, pushing the price of light, sweet crude oil for July delivery down 21 cents to $20.03 a barrel.

Market Roundup, D6