WORLD TRADE AT A CROSSROADS : FINANCIAL MARKETS : Optimism About House Vote Sends Dow Above 3,700
The Dow Jones industrial average, which had been down most of the day, surged into record territory in late trading Tuesday on a buying frenzy triggered by optimism that the House of Representatives will approve the North American Free Trade Agreement today.
The bond market, however, turned mixed in quiet trading amid the market’s reluctance to take on new positions ahead of tonight’s vote.
The Dow industrials, which were down for most of the day, gained 33.25 to close at 3,710.77, the first time the average has finished above the 3,700 mark. The Dow’s previous record high was 3,697.64 on Nov. 2.
The Dow surpassed the 3,700 mark about three months after hitting 3,600. It closed at 3604.86 on Aug. 18. Last Jan. 1, the index stood at about 3,270.
But in the broader market, advancing issues barely outnumbered decliners on the New York Stock Exchange. Volume totaled 303.98 million shares, up from Monday’s 251.03 million.
Mexican stocks also soared to a record high Tuesday on optimism that Congress will give a green light to NAFTA. The IPC index of 36 shares climbed 36.02 points to end at 2,159.35 in the fifth straight record session.
“It appears as though the market has placed its bets on the side of Bill Clinton and the pro-NAFTA forces,” said Bob Walberg, market analyst at MMS International.
The White House said Tuesday that it was close to gaining the necessary votes to ensure House passage of the trade pact. But anti-NAFTA congressional leaders said they still had enough supporters to defeat it.
Traders said computer-driven buy programs helped fuel the late rally.
Investors were not necessarily buying stocks they see gaining from free trade with Mexico, but rather were assuming the trade pact’s passage would bring a general lift to the market, traders said.
“I think they’re just making a bet on the market,” said Kenneth Ducey, director of trading at BT Brokerage.
Among the market highlights:
* Telefonos de Mexico, the country’s big phone company and a bellwether of NAFTA sentiment, led stocks of Mexican companies higher. It was up 2 1/2 to 56 7/8 in NYSE trading.
* Among Dow industrial stocks that fed the rally were IBM, up 1 3/4 to 52 3/4; General Motors, up 1 1/4 to 52 3/4; General Electric, up 2 1/4 to 96 1/2; Sears, up 1 1/2 to 58 1/2; and McDonald’s, up 1 7/8 to 57 1/8.
* Among other active NYSE issues, General Motors Class E stock, representing equity in its Electronic Data Systems subsidiary, was down 2 to 29. GM announced Monday night that it would use $5.7 billion worth of the stock to reduce its unfunded pension liability.
* Other large computer makers joined in IBM’s gain. Apple Computer was up 2 to 34 on the Nasdaq, while No. 3 personal computer maker Compaq gained 3 1/8 to 70 on the NYSE.
* Paramount Communications was down 1 3/4 to 78 3/8 as QVC Network Inc. asked a judge to throw out anti-takeover defenses blocking its hostile bid for the entertainment conglomerate. QVC was down 7/8 to 50 7/8 on the Nasdaq market. Viacom, which has signed a friendly deal to buy Paramount, lost 1 3/8 to 51 3/4 on the American Stock Exchange.
* Home Depot tumbled 1 7/8 to 42 1/4 after its third-quarter earnings came in slightly below analysts’ forecasts.
* Perfumania gained 1 1/8 to 7 1/4 on news that it was in early talks about linking with a unit of Revlon.
Other overseas stocks also closed higher. Germany’s DAX 30-share average was up 22.61 points at 2,071.72, and Tokyo’s key 225-share Nikkei average closed at 18,246.12, up 171.51 points. In London, the Financial Times 100-share average closed 4.2 points higher at 3,097.5.
Credit
Amid a dearth of major news, the only source of life for Treasury securities trading was buying that originated in the municipal securities market.
At the end of the session, notes and bonds were holding mixed levels.
The Treasury’s main 30-year bond yield edged upward to 6.16% from 6.15%, while its price, which moves in the opposite direction, slipped 1/16 point, or 63 cents per $1,000 in face value.
Stock and bond investors generally have viewed the trade pact with Mexico and Canada as beneficial for U.S. markets, in part because its defeat would be a blow to U.S. prestige and potentially hurt foreign investment in the United States.
There also is sentiment in the bond market that inflation will be checked by intensified competition for U.S. consumers, which would force companies to keep a lid on price increases.
The value of bonds and other fixed-income investments can be reduced over the years by inflation.
The federal funds rate, the interest on overnight loans between banks, was 3%, down from 3.25% late Monday.
Other Markets
* The dollar rose against most major currencies as Germany lowered an interest rate and some traders began to grow optimistic that NAFTA will pass. In New York, the dollar closed at 1.705 German marks and at 106.75 Japanese yen, up from 1.699 marks and 106.70 yen respectively on Monday.
* Gold prices fell domestically and rose overseas. On the New York Comex, gold closed at $374.10 an ounce, off $1.10 from Monday. Silver ended at $4.555 an ounce, up half a cent.
* December light sweet crude oil edged up 1 cent on the New York Merc.
Market Roundup, D8
