Dow Dips as the Broader Market Gains
* Blue chip stocks fell during late trading Monday, although other major market indicators rallied, encouraged by steady interest rates and higher share prices overseas.
* Treasury bond rates retreated as traders welcomed a regional economic report indicating that inflation pressures may be less than feared.
* The dollar fell against most major currencies in light trading. Gold finished higher.
Stocks
After spending most of the session in positive ground, the Dow Jones average finished the day down 6.76 points at 3,832.02. But in the broader market, advancing issues outnumbered declines by about 2 to 1 on the New York Stock Exchange.
There was little to account for the Dow’s decline, other than jitters among stock investors provoked by rising interest rates and inflation, as well as by events in Russia and Bosnia, said Michael Metz, investment strategist with Oppenheimer & Co.
Traders said late-session, computer-generated sell programs helped fuel the blue chip barometer’s decline.
Big Board volume was a moderate 267.61 million shares, down from 273.68 million on Friday.
Among other major market indicators, the Standard & Poor’s index of 500 stocks rose 1.07 to 467.14, while the NYSE’s composite index rose 0.66 to 259.23. At the American Stock Exchange, the market value index rose 3.89 to 471.34.
A surge in telecommunications stocks after news of MCI’s move into wireless communications and gains in high-technology shares lifted the Nasdaq composite index of mostly smaller stocks 8.72 points to 792.50.
“Other than the tobaccos, it’s not a bad day,” said William LeFevre, senior market analyst at Ehrenkrantz King Nussbaum.
LeFevre noted that the Dow ended February with a 3.7% decline after rising 6% in January.
“When you’re going to have a correction in a bull market, that’s the kind of thing that happens,” he said. “I don’t see this as the end of the world.”
Tobacco stocks fell in heavy volume after the Food and Drug Administration raised the possibility Friday that drug regulations might be applied to cigarettes because of their nicotine content.
A factor in the broader market’s advance was a strong start from overseas stocks. Tokyo stocks ended firmer, with the Nikkei 225-share average closing at 19,997.20, up 193.82. Frankfurt’s 30-share DAX average ended at 2,091.57, up 16.65 points, while London’s Financial Times 100-share average ended 46.9 points higher at 3,328.1.
Mexico City’s Bolsa index retreated 10.95 points to 2,585.44.
Among the market highlights:
* Dow component Philip Morris fell 2 to 56, RJR Nabisco dropped 3/8 to 6 7/8 and American Brands lost 5/8 to 33 1/8, although industry analysts downplayed the possibility of the FDA action against cigarettes.
* The Dow was also hurt by profit taking in some cyclical stocks, including Alcoa, off 1 to 75 1/4, and International Paper, down 7/8 to 72 5/8, traders said.
* MCI Communications, which topped the Nasdaq activities list, rose 7/8 to 27 3/8 after announcing a $1.3-billion investment in Nextel Communications as part of an alliance including cable television operator Comcast Corp. Nextel, which runs wireless networks using mobile radio technology, gained 5 5/8 to 44 1/4, and Comcast rose 1 1/4 to 20 3/8.
* Companies dealing with Nextel also rose. Dial Page, a volatile wireless stock, rose 5 1/4 to 54 1/2, and Cencall Communications rose 3 7/8 to 28 1/2.
* Viacom traded actively. Some Blockbuster Entertainment shareholders asked a Delaware judge to block the video rental company’s merger with Viacom, including its plans to buy $1.25 billion in Viacom stock. Viacom Class B shares rose 1 3/8 to 28 3/8 and Blockbuster rose 1/4 to 26 1/2.
Credit
The 30-year bond fell to 6.65% from Friday’s 6.71%, which pushed prices up 21/32 point, or $6.56 per $1,000 in face value. On Friday, the key bond’s price rose 5/16 point. Yields and prices move in opposite directions. Analysts cautioned that Monday’s price increase came on thin trading volume and that the market was still fundamentally weak following a monthlong selloff.
“This is not to be characterized as a sea change in attitudes. The truth of the matter is there still is a lot of skepticism about where interest rates are headed,” said William Sullivan, director of money market research at Dean Witter, Discover & Co.
The Purchasing Management Assn. of Chicago reported that its index of area business activity rose to 60.3 in February from 59.6 the month before. But the Chicago survey also showed lower employment and price indexes, conditions that can help increase the value of bonds.
Job and price weakness both point to milder inflation. Bond investors follow inflation trends closely because higher consumer prices can make the returns on their bonds worth less over time.
Signs of inflation also increase the likelihood that the Federal Reserve Board will move soon to raise interest rates again. Higher rates on new securities diminish the value of already sold bonds, which pay a fixed rate of return.
The Chicago area report is frequently seen as a precursor to a widely followed national report on the manufacturing economy, which is to be released Tuesday.
Prices of short-term Treasury securities rose between 3/32 point and 1/8 point, and intermediate maturities rose 7/32 to 13/32 point, the Telerate Inc. financial information service reported.
Commodities
Gold, silver and platinum futures prices rallied Monday as political and military tensions around the world prompted investors to seek the traditional safe haven of precious metals. On the New York Comex, gold for current delivery closed at $381.40 an ounce, up $2.80 from Friday. Silver closed at $5.356 an ounce, up 13 cents.
Monday’s gains were driven by the violent aftermath of the massacre in the Israeli-occupied West Bank, the NATO’s downing of the Bosnian Serb aircraft and the chill in U.S.-Russian relations in the wake of the recent spying scandal, said Bette Raptopoulos, a metals analyst at Prudential Securities Inc.
Raptopoulos said silver’s strength relative to gold indicates buying by Middle Eastern investors, who have been big players in the silver market since last fall.
“They’re buying silver as a safety asset,” Raptopoulos said.
Elsewhere, crude oil futures weakened on the New York Merc in reaction to heating oil’s failure to sustain strong gains early in the session. Light, sweet crude oil for April delivery fell 9 cents to $14.48 a barrel.
Currency
Bearish sentiments about the greenback outweighed concerns of a crisis following the downing of four Bosnian Serb planes by U.S. jets under NATO command.
Traders said the dollar rose slightly after two U.S. fighter jets shot down the planes. The four planes had crossed into a United Nations no-fly zone over Bosnia.
The dollar usually gains on political crises because it is seen as a haven. However, the dollar couldn’t sustain its gains and fell through several important technical levels against the German mark, triggering prearranged orders to sell the U.S. currency.
The dollar may also have been hurt by comments by Federal Reserve Board Gov. Lawrence Lindsey, who said he wasn’t sure if the central bank would have to raise short-term interest rates again.
“I think that took a little wind out of the dollar’s sails,” said Randolph Donney of Pegasus Econometric Group.
Donney said investors were bearish on the dollar because they expected the U.S. economic performance in February to be hurt by bad weather.
Investors “increasingly believe the yen is going to strengthen,” said David Durst, a vice president at Bear Stearns.
In New York, the dollar closed at 104.60 Japanese yen, down from 104.85 on Friday. It also fell to 1.704 German marks, down from 1.711.
