THE ECONOMY: ADJUSTING TO NEW REALITIES : Dow Regains Some Ground Lost in Plunge : Markets: The industrial average rises 34.90 in the wake of Friday’s 96-point decline. But the broad market is weak.
Blue-chip stocks Monday recouped more than a third of Friday’s sharp loss, avoiding what some analysts had feared could mark the beginning of a sharper selloff.
But sellers still dominated in the broad market, suggesting lingering concern about the Federal Reserve Board’s decision last week to tighten credit.
The Dow Jones industrial average gained 34.90 points to 3,906.32 on Monday, with most of the rise occurring late in the day after a sluggish start.
The Dow had plunged 96.24 points Friday after the Fed said it was boosting the key federal funds rate from 3% to 3.25%, the first official interest rate hike by the central bank since 1989.
The Fed’s increase is aimed at prolonging the economic expansion by assuring that the current boomlet in activity doesn’t overheat and fuel inflation. But on Friday, many investors focused on the negative effects of higher rates--fearing, for example, that more attractive money market yields will eventually choke off stock investment.
On Monday, however, investors returned to blue-chip industrial stocks that should benefit from a continuing economic expansion. Big gainers included General Motors, up 1 3/8 to 63; IBM, up 2 1/4 to 54 1/4, and USX-U.S. Steel, up 1 1/4 to 43 7/8.
“Very good turnaround, surprisingly,” said analyst Patrick Davis at Salomon Bros. in New York. But he added, “I think it is going to take a little while for the market to digest all of this.”
Indeed, most broader stock indexes closed only marginally higher Monday. The Nasdaq composite index of mostly smaller stocks, for example, inched up 1.92 points to 779.20, after plummeting 20.51 points Friday.
Falling stocks outnumbered winners 15 to 12 on the Nasdaq and 12 to 10 on the New York Stock Exchange. Volume continued to be heavy but was below Friday’s levels on the Big Board.
Mutual fund giants Fidelity Investments and Vanguard Group both said that individual investors showed little reaction to the market’s tumult and that Monday buying and selling activity was normal.
In the bond market Monday, interest rates inched up again, still responding to the Fed’s tightening and to this week’s sale of $40 billion in Treasury bonds.
Meanwhile, overseas stock markets were broadly lower Monday, reacting to Friday dive on Wall Street. By early today in Asia, however, many foreign markets were climbing again.
In mid-morning trading today, Singapore’s Straits Times index was up 23.63 points to 2,338.08, after tumbling 46.52 points on Monday. Bangkok’s SET index, down 99 points to 1,344.81 on Monday, was up 13.41 points to 1,358.22 early today.
And Tokyo’s Nikkei index, down 287.03 points Monday, jumped 387.64 points to 20,402.04 early today as the government set long-awaited plans for a tax cut.
In Europe on Monday, Frankfurt’s DAX index plunged 58.85 points to 2,079.40, and London’s FTSE-100 index slid 56.3 points to 3,419.10.
Among U.S. market highlights:
* Industrial issues rebounding included DuPont, up 1 1/4 to 54 7/8; GE, up 1 3/4 to 108 1/4; Caterpillar, up 2 3/4 to 105 1/4, and Cummins Engine, up 2 5/8 to 53 5/8.
* Metal and general mining stocks also gained. Alcoa jumped 2 to 78 1/8, Phelps Dodge rose 1 3/8 to 56 1/4, Reynolds Metals was up 1 3/4 to 52 1/8 and Inco added 3/8 to 27 3/8.
Gold mining stocks, however, were sharply lower as bullion prices dropped in profit taking. ASA sank 1 7/8 to 48 3/4, American Barrick dropped 1 to 25 3/4 and Placer Dome tumbled 1 5/8 to 24.
* Among young growth stocks rebounding, America Online surged 5 3/4 to 70 1/2, Snapple Beverage leaped 1 7/8 to 28 1/8 and Callaway Golf gained 4 1/4 to 68 3/4.
* Apple Computer rocketed 3 1/8 to 36 1/2 on optimism about its upcoming personal computer introductions.
* Biotech leader Amgen shot up 2 1/8 to 44 after Salomon Bros. recommended the stock.
* Telmex rebounded 1 1/4 to 74 1/4 in NYSE trading. And in Mexico City, the Bolsa index ignored the U.S. market’s troubles for a second day. The Bolsa added 1.42 points to a new record 2,824.40.
Other Markets
Bond yields continued to edge higher, as investor nervousness over the Fed’s rate hike failed to dissipate.
The yield on three-month Treasury bills, which had surged from 3% to 3.28% last week in tandem with the Fed’s credit tightening, rose to 3.30% on Monday.
The 30-year T-bond yield closed at 6.39%, up from 6.35% on Friday.
Still, traders noted that the selling pace in the market slowed somewhat. Also, some rise in yields would normally be expected in advance of the Treasury’s quarterly refunding this week.
The Treasury will sell a total of $40 billion in new three-year, 10-year and 30-year securities. The sale begins today with the three-year issue. The when-issued yield on the new three-year notes was quoted at 4.81% on Monday.
Meanwhile, the federal funds rate was quoted at 3.31%, up from Friday’s 3.25%, the Fed’s new perceived target for the rate. Fed funds is what banks charge each other for overnight loans.
Elsewhere:
* Gold and silver prices tumbled in heavy profit taking that some traders tied to expectations of continued low inflation, thanks in part to the Fed’s efforts to keep economic growth moderate.
The Fed “has made inflation public enemy No. 1,” said Greg Drury, director of precious metals trading at Mitsui & Co.
Near-term gold futures plummeted $7.70 an ounce to $378.90 on the New York Comex. Silver shed 18.7 cents to $5.23.
Market Roundup, D10
New York Volume: 348.27 million shares
30-year T-Bond: 6.39%
1-year T-Bill: 3.83%
