Dow Up, Dollar Down Amid Japan Friction
Market Overview
* U.S. stocks rose broadly for a third day, despite concerns about a trade war with Japan and anticipation of a report due today on January inflation. But utility stocks tumbled.
* The dollar continued to stabilize as currency dealers awaited word of the next step in the trade fight. Long-term bond yields were largely unchanged.
Stocks
The market surged at the start, with the Dow industrials up 22 points in early-morning trading, after gaining 24 points Tuesday.
But the Dow slipped later as some investors focused on the potential for an escalation in the trade war of words between the United States and Japan.
At the close, the Dow was up 9.00 points to 3,937.27. Winners edged losers 12 to 9 on the New York Stock Exchange and 15 to 11 on Nasdaq, and most other stock indexes rose modestly.
Analysts said the broad market’s continuing strength was impressive. Some Wall Streeters believe the market is attempting to build a base for another advance that would top previous highs set before the Federal Reserve Board tightened credit a notch on Feb. 4.
However, a major rally may have to wait on some resolution of the current U.S.-Japan trade fight, experts say.
Also, the continuing decline in utility stocks remains a problem for some market watchers. Historically, falling utility stocks have often heralded higher interest rates and, eventually, a bear market.
On Wednesday, the Dow utility index slumped 2.70 points, or 1.3%, to 212.76, the lowest level since the early summer of 1992.
Interest rates could be volatile today, depending on the extent of the rise in consumer prices in January. The government reports that inflation figure this morning.
Among Wednesday’s highlights:
* Aerospace stocks gained on news of a huge Saudi order for U.S. commercial jets. Boeing shot up 2 1/8 to 46 1/2, McDonnell Douglas rose 1 7/8 to a record 118 7/8, United Technologies leaped 2 5/8 to 71, Rohr added 3/4 to 10 1/2 and Rockwell International jumped 1 3/4 to 43 1/2.
* Industrial stocks in general were strong, continuing their recent streak. Phelps Dodge rose 1 to 55 3/8, Nucor gained 1 1/8 to 59 1/2, Reynolds Metals was up 1 1/4 to 52 1/8, ITT surged 3 1/8 to 104 and Kennametal rose 1 to 51 1/8.
* Tech stocks got a lift after Hewlett-Packard reported stronger-than-expected quarterly earnings. H-P leaped 3 5/8 to 89 1/8, Intel gained 2 to 67, Motorola surged 3 1/8 to 104 1/2 and Xircom added 1 to 24.
But Newbridge Networks lost 3 5/8 to 61 5/8 despite reporting that quarterly earnings more than doubled.
* Health maintenance organization stocks were higher on takeover speculation after United Healthcare and Ramsay-HMO agreed to merge. Among California HMOs, Wellpoint Health jumped 1 1/4 to 34 1/2 and PacifiCare Class A shares surged 2 1/4 to 56.
* On the downside, falling utility stocks included Commonwealth Edison, down 1/2 to 26 1/2; Houston Industries, down 7/8 to 42 1/4, and Peco Energy, off 1/2 to 25 7/8.
* Surgical device maker U.S. Surgical plunged 5 5/8 to 21 1/2. A federal court jury ruled in favor of Johnson & Johnson in a patent infringement suit brought by U.S. Surgical. J&J; slipped 1/2 to 41 3/4.
Overseas, Tokyo stocks recovered slightly from the previous two days’ losses brought on by the trade fight. The Nikkei index closed at 19,052.11, up 77.51 points.
In Frankfurt, the DAX index closed at 2,136.61, up 20.99 points, while in London the FTSE-100 index gained 24.5 points to 3,417.7.
In Mexico City, the Bolsa index snapped a five-day losing streak and rose 19.64 points to 2,780.23 as 28-day Treasury bill yields fell to a historic low of 9.15%.
Currency
Aggressive purchases of dollars by the Bank of Japan helped lift the dollar in overseas trading.
In New York, however, the dollar closed at 103.80 yen, down slightly from 103.85 on Tuesday but still well above the low of 101 reached Monday.
In the absence of new developments in the trade fight between the United States and Japan, dealers said many are scrambling to buy back dollars sold in a hurry after the U.S.-Japan trade summit collapsed Friday.
The next test for the dollar could come today, when the government reports on the nation’s January trade deficit. That could bring new calls for sanctions against Japan or for a stronger yen.
The White House has said it is not interested in using the dollar as a weapon in the trade fight with Japan, but many currency traders are unconvinced.
Other Markets
Investors found little reason to buy or sell bonds despite a report showing a steep decline in the housing industry last month.
The Treasury’s 30-year bond yield inched up to 6.46% from 6.45% a day earlier.
The Commerce Department said housing starts plunged 17.6% in January because of inclement weather and the Northridge earthquake. While lower starts normally would indicate a slowing economy, many bond traders expect the housing figures to rebound soon.
The bond market will be tested today with the January consumer inflation report.
Elsewhere:
* Oil continued its slide. On the New York Merc, light, sweet crude for March fell 13 cents to $13.93 a barrel. Analysts said the market is poised to test the five-year low of $13.75 a barrel set in December.
* Lumber for March delivery soared $10 to $436.50 on the Chicago Merc as traders bet on a spring rebound in housing construction.
* Gold eased on the New York Comex to $383.60 an ounce, down 20 cents from Tuesday. Silver closed at $5.27, up 1.9 cents.
