FINANCIAL MARKETS : Bond Selloff Continues; Dow Drops 2.80 : Market Overview
A bond market selloff stretched into a third session Thursday, pushing the closing yield on the key 30-year Treasury bond above 6% for the first time in two weeks.
* Stocks climbed above their lowest levels of the day, but still finished with modest losses as the weakness in the bond market weighed down Wall Street.
* Gold prices rebounded as signs of rising Chinese demand for the metal convinced some traders that after seven weeks, the market’s slide was over.
Credit
The rise of long-term interest rates was accelerated by a sharper than expected rise in the weekly money supply figures.
The yield on the key bond rose to 6.03%, up sharply from its 5.97% close Wednesday. Its price, which moves in the opposite direction, dropped 25/32 point, or $7.81 per $1,000 in face value, after falling 17/32 point Wednesday.
Traders in London began selling overnight after the New York Times reported in Thursday’s editions that two Federal Reserve Board governors believe that any further reduction of interest rates would encourage dangerous speculation in the bond and stock markets.
Lower interest rates make fixed-income investments, such as bonds, more attractive than other investments.
The selling picked up late in the session after the Fed released the weekly money supply figures, which showed more growth than had been expected, said Carol Stone, senior economist at Nomura Securities International Inc.
An unexpected rise in the money supply can be a sign of inflation, which erodes the value of bonds.
The federal funds rate, the interest on overnight loans between banks, was 3.125%, down from 3.25% on Wednesday.
Other Markets
Another jump in long-term interest rates and the rise of gold prices capped the market’s attempt to mount a rally.
The Dow Jones industrial average drifted within a relatively narrow range and posted a minor deficit of 2.80 points, closing at 3,630.85.
Activity in the stock market was slowed a bit by the Rosh Hashana holiday. Big Board volume was 229.70 million shares, down from 298.26 million on Wednesday.
The tallies of stocks falling and rising in price weren’t far apart on the New York Stock Exchange, where 926 issues gained, 989 fell and 687 were unchanged.
Among the market highlights:
* Rising gold prices boosted gold stocks: Placer Dome rose 1 3/4 to 19 1/8, ASA Ltd. rose 1 5/8 to 41 5/8 and Newmont Mining added 1 3/8 to close at 46 5/8.
* Home Depot rose 1 7/8 to 37 3/8. J. C. Bradford raised the company’s near-term rating to “buy” from “neutral.”
* Whirlpool slumped 3 1/2 to 57 1/4 on concern that its second-half growth would not match that of the first half.
* Sun Microsystems fell 1 3/4 to 24 7/8 after Morgan Stanley lowered its rating of the firm to “hold” from “buy.”
In stock trading overseas, Tokyo’s Nikkei average fell 445.64 points, or 2.13%, to 20,502.15, and Frankfurt’s DAX-30 average was down 4.72 points at 1,855.67. In London, however, the Financial Times 100-share average rose 14.5 points to close at 3,003.9.
Elsewhere, gold for current delivery rose $5.10 an ounce to $352.60 an ounce on New York’s Commodity Exchange. Silver for current delivery closed at $4.067 an ounce, up 9.1 cents.
One factor behind gold’s recent skid, slack demand from mainland China, may be changing, analysts said.
The price premium for gold in Hong Kong over the prevailing world price has widened, indicating increased Chinese buying, said George Milling-Stanley, precious metals analyst for Lehman Bros. Inc.
In energy trading on the New York Mercantile Exchange, light, sweet crude oil for October delivery slipped 3 cents to $16.83 a barrel.
Meanwhile, the dollar slid in New York to 104.15 Japanese yen from 105.98 on Wednesday. It rose to 1.603 German marks from 1.595.
Market Roundup, D6
