Russia’s political crisis sent shock waves through U.S. markets Tuesday, rattling stocks and bonds while gold and the dollar rallied spectacularly as investors sought safe havens.
President Boris Yeltsin dissolved Parliament and called for new elections, igniting a firestorm of criticism from his chief rival, Parliament Chairman Ruslan Khasbulatov.
Parliament, meeting in an emergency session, subsequently stripped Yeltsin of presidential powers and installed his archrival, vice president Alexander Rutskoi, as acting president.
The Dow Jones industrial average tumbled 38.56 points to end at 3,537.24. At one point in the session, the index was off more than 68 points. The drop came on the heels of a 37-point selloff Monday.
Russia’s tensions drew buyers to “safe haven” markets, including gold and oil. But bond prices continued their recent swoon, raising the yield on the Treasury’s 30-year bond to 6.12% from 6.10% at Monday’s close.
Gold for current delivery closed at $362.90 an ounce, up $9.40 on the New York Commodity Exchange. The rise virtually wiped out in a single afternoon all of gold’s sharp losses of the last two weeks. In energy trading, October deliveries of light, sweet crude oil rose 42 cents to $18.12 a barrel.
Russia is among the world’s largest producers of gold, platinum and crude oil. The jump in prices reflected fears that a Russian power struggle could escalate into armed conflict.
On Wall Street, “psychology was fragile, the market was contracting and the turmoil in Russia just pushed the market, which was already in the process of stumbling and falling,” said Alan Ackerman, executive vice president at Reich & Co.
Concern about the economy and corporate profits also weighed on the stock market, analysts said. Several high-profile companies have recently released disappointing earnings reports or profit projections.
“The weakness reflects anticipation of slower earnings in the third quarter,” said Mary Farrell, an investment strategist with Paine Webber.
Consequently, once again the so-called “cyclical stocks” led the stock market’s decline. Caterpillar, for example, fell 1 7/8 to 77 1/8.
In the broader market, declining issues outnumbered advances by about 5 to 2 on the New York Stock Exchange. Big Board volume came to a heavy 300.31 million shares, up from 231.13 million in the previous session.
Among the market highlights:
* Gold mining companies benefited from the jump in bullion prices. ASA Ltd. rose 2 to 43-1/3, and Homestake Mining added 1 to 17 5/8.
* Paramount Communications soared 7 1/2 to 77 1/4 on news that QVC has offered $9.5 billion for it. The QVC offer rivaled an earlier bid from Viacom, which fell 2 3/8 to 56 3/4.
* QVC rose 1/8 to 56 1/8 on the NASDAQ market.
* 3Com rose 3 3/8 to 30 5/8 on stronger-than-expected first quarter results.
* Quality Food Centers fell 5 3/8 to 25 7/8. It reported disappointing third-quarter profits.
* Primerica lost 1 1/4 to 46 after Morgan Stanley cut its investment rating for Primerica, citing its high price as a factor.
* Westinghouse Electric lost 1/4 to 13 amid concern about profits.
* Datum rose 1 1/2 to 5 1/4. The company said it received a contract from MCI Communications to provide equipment for MCI’s long-distance telephone network.
In overseas trading, share rose again in Frankfurt with the DAX 30-share average rising 13.01 points to close at 1,925.85. Tokyo’s Nikkei average rose 200.62 points to 20,466.65. In London, the Financial Times 100-share average ended down 2.9 at 3,001.6.
The turmoil in Russia drove safety-minded investors to shorter term government securities, considered the least risky of Treasury investments. That boosted their prices.
But the same confusion apparently raised fears that inflation would head higher, hurting 30-year bond prices, which are most vulnerable to inflation pressures.
The price of the Treasury’s main 30-year bond, which was modestly higher in early trading, ended down 3/8 point, or $3.75 per $1,000 in face value. It was the bond’s seventh straight losing session.
Prices of most short- and intermediate-term Treasuries, meanwhile, were slightly higher. But the 10-year bond slipped 1/32 point, the Telerate Inc. financial information service reported.
The Russian president’s ouster of the hard-line congress and announcement of December elections for a new congress came at a particularly opportune time for shorter term securities.
The news broke as the Treasury released auction results that analysts said reflected lackluster investor demand for the $16 billion in new two-year government notes.
Ordinarily, slack demand might depress prices in the secondary market, where newly sold bonds are traded. But the turmoil in Russia helped short-term securities “shake off the negative impact of the results,” said Anthony Karydakis, senior financial economist at First Chicago Capital Markets.
But longer term bond prices collapsed amid creeping fears that the six-week rally that drove down yields one half-percentage point this summer may be undergoing a lasting reversal.
The federal funds rate, the interest on overnight loans between banks, fell to 3% from 3.125% late Monday.
News of the Russian turmoil hit the currency markets late in the trading day, when activity was thin and many traders were short dollars--meaning they had sold dollars they had borrowed, figuring they could buy them cheaper later on, before returning them. Instead, the dollar shot up in value, prompting a scramble by traders to cover themselves.
Traders said investors bailed out of German marks, the dominant European currency, because of Germany’s proximity to Russia and its status as a major creditor to the states of the former Soviet Union. The dollar closed in New York at 1.637 German marks, up from Monday’s 1.612.
“It’s back to the old days of safe haven for the dollar,” said Jack Griffin, a vice president at Fuji Bank Ltd.'s New York branch.
The greenback ended at 106.25 Japanese yen, up from 104.67 yen on Monday when the Japanese central bank cut a key lending rate, the discount rate, by 0.75 percentage point.
However, traders said the dollar rose mainly because of a Japanese news report saying U.S. officials had pledged to cooperate with the Japanese in keeping the yen from growing too strong.
The British pound was quoted in New York at $1.515, cheaper than Monday’s $1.532.
Market Roundup, D6
* RUSSIAN TURMOIL
President Boris N. Yeltsin gambles, dissolves legislature. A1.