FINANCIAL MARKETS : Dow Drops 13.01 on Fears of Higher Rates : Market Overview
Stock prices closed lower as nervous traders sold off shares amid growing concern about an upturn in interest rates.
* Treasury bond yields closed lower in a quiet session dominated by last week’s surprisingly strong employment report and concerns about rising interest rates.
* Oil futures prices plunged sharply on the New York Mercantile Exchange on selling sparked by fears of an increase in OPEC production quotas.
Stocks
Traders said stocks of banking, insurance and brokerage companies were pressured by the fears of higher interest rates ahead.
The Dow Jones industrial average fell 13.01 points to 3,532.13 on Big Board volume of 236.92 million shares, up from 226.44 million in the previous session. Declining issues outnumbered advances by about 3 to 2 on the New York Stock Exchange.
Investors are keen to see if Friday’s producer price report for May will show a repeat of the surprisingly large 0.6% jump in April, which sparked a selloff in the stock market.
“People are talking about inflation again,” said Jim Toth, head trader at McDonald & Co., adding that the market seemed dominated by profit taking.
“I think the market is showing extreme signs of running out of gas,” said Peter Canelo, chief investment strategist at NatWest Securities. “I think the stock market has already seen the turn in rates and the Fed tightening. All the interest-rate-sensitive investments are getting decimated.”
Outside of prominent industry group moves, the action was “really name-specific and situation-specific,” said Ron Hill, an investment strategist at Brown Bros. Harriman, pointing to the heavy trading in semiconductor stocks Intel and Advanced Micro Devices as examples.
Among the market highlights:
* Intel rose 1 3/4 to 58 1/8 while Advanced Micro lost 4 1/4 to 23 3/4 following a court ruling that favors Intel in the companies’ dispute over Intel’s 386 computer chip.
* Among interest-rate-sensitive stocks, BankAmerica slipped 1 to 42. Prudential cut its rating to “sell” from “hold.”
* Citicorp shed 1 3/8 to 26 3/8, while insurers American International Group sank 3 5/8 to 125 7/8 and General Re lost 3 1/8 to 111 1/2.
* Cooper Tire slumped 7 1/2 to 25 3/8. It said second-quarter sales and earnings will be “generally good” but may be lower than those of the year-ago period.
One of Cooper Tire’s biggest customers, TBC Corp., helped drive Cooper Tire down when it said its second-quarter results will be below a year ago. Its shares lost 3 7/8 to 11 7/8.
* Gaming stocks pulled back after their recent strength. Circus Circus fell 3 1/8 to 56 1/2 and Casino Magic lost 8 to 70 1/2.
* Home Depot lost 2 1/8 to 42 3/8 after Montgomery Securities downgraded the operator of home improvement stores.
* Apple Computer lost 4 1/8 to 50 3/4. Dean Witter cut its estimates on the computer firm, and Bear Stearns said second-quarter profit could be below its estimate.
In overseas trading, Frankfurt’s 30-share DAX average was up 17.76 at 1,655.61. In Tokyo, the 225-share Nikkei average was down 38.05 points at 20,844.19. On the London Stock Exchange, the Financial Times 100-share average finished 14.9 points higher at 2,844.8.
Credit
The day’s trading lacked a galvanizing economic event or data, so volume remained light throughout the day as investors and dealers contemplated Friday’s stronger-than-expected May employment report.
The yield on the Treasury’s key 30-year bond retreated to 6.87% from Friday’s 6.91% as its price, which moves in the opposite direction, rose 15/32 point, or $4.69 per $1,000 in face amount, at closing.
Bond prices sank Friday on word that 209,000 new jobs were created in May, a sign of unexpected economic vigor that may portend a rise of inflation. Inflation is the bane of the bond market because it erodes the value of fixed-income investments over time.
Dan Bernstein, research analyst at Bridgewater Associates Inc. in Wilton, Conn., was one of several analysts who said the selling was a bit out of hand following Friday’s report. The survey showed the nation’s unemployment rate fell to 6.9% in May from 7.0% the month earlier.
“We thought Friday’s move was an overreaction (to) the employment report and today’s move is a bounce back from that,” Bernstein said.
The federal funds rate, the interest on overnight loans between banks, held at 3.0%, the same as late Friday.
Other Markets
Commodities traders said the oil market had a negative tone before the start of a meeting in Geneva where the Organization of Petroleum Exporting Countries will face pressure to lift production ceilings.
Light, sweet crude oil for delivery next month, which lost 3 cents Friday, fell 23 cents to settle at $19.54 per barrel on the New York Mercantile Exchange.
Thomas Blakeslee, an energy strategist at Brody, White & Co., said there was no specific negative news pressuring the market lower, just a negative tone in advance of the OPEC meeting.
The declines in crude, however, related mostly to technical factors governing levels at which to sell oil futures.
The focus of the OPEC meeting will be Nigeria and Kuwait, which have called for higher production ceilings to allow them to pump additional crude.
If those demand are met, prices could be driven lower this summer, Blakeslee said. But if the countries agree to lower production levels, “it’s likely to be perceived as bullish in the short run,” he said.
Meanwhile, in precious metals trading on the New York Commodity Exchange, gold for current delivery settled $2.80 lower at $374 an ounce, and June silver was 2.9 cents lower at $4.405 cents an ounce.
Meanwhile, the dollar finished mostly lower on world currency markets.
Analysts said the dollar was poised for a technical correction following its sharp rise Friday, when the currency got a boost from the unexpected surge in May employment.
When trading began in Europe, the currency was hit by profit taking, which continued as activity shifted to domestic markets, said Randolph Donney, research director at Pegasus Econometric Group in Hoboken, N.J.
In New York, the greenback settled at 107.25 Japanese yen, down from 107.75 yen Friday. The dollar also fell to 1.621 German marks, down from 1.626.
The British pound rose to $1.522 from $1.509 late Friday.
Market Roundup, D8
