Jitters but No Big Corrections on Wall Street

Rising interest rates sent stock prices lower Thursday, but jittery markets continued to avoid the type of dramatic correction that many investors feared.

Unlike Wednesday, when stocks staged a dramatic comeback, the market struggled unsuccessfully to fully recover from a bout of selling in the morning. Most measures of stock performance ended the session with modest losses.

The Dow Jones industrial average finished down 7.32 at 3,824.42, after improving from a loss of more than 20 points during the morning’s selloff. Broadly based measures dominated by New York Stock Exchange issues also lost ground. The NYSE composite fell 0.79 to 256.68 and the Standard & Poor’s 500 index dropped 1.80 to 463.01.

Still, the market mostly shrugged off the turmoil in some overseas stock and bond markets, which has caused large losses for a number of major banks and speculative investment funds. Bank stocks continued to fall on fears that they had sustained substantial losses on risky currency and bond trades and stock plays in emerging markets.

Gauges of smaller stocks fared better. The Nasdaq composite gained 1.11 to 784.58, helped by strength in a range of computer and technology shares. At the American Stock Exchange, the market value index dipped 0.67 to 465.65.

Losers outnumbered gainers on the NYSE by about 5 to 4, and volume on the Big Board eased to 291.79 million shares. On Wednesday, a much heavier total of 361.12 million shares changed hands.

Stocks took their cue from the bond market, where prices declined, causing a corresponding increase in interest rates. Prices of all maturities of government notes and bonds moved down, with the 30-year Treasury bond off about 3/4 point, driving up its yield to 6.84% from 6.77% on Wednesday.

Bonds were sold for technical reasons--and in response to fresh evidence of economic strength. The Labor Department reported that the number of Americans filing first-time claims for jobless benefits fell by 57,000 last week to the lowest level since Christmas, marking the steepest decline since August, 1992.

Financial markets have been fearful that the rebounding economy will breed inflation, prompting the Federal Reserve Board to implement additional interest rate hikes to head off price pressures. A gentle nudge upward in rates by the Fed in early February has put the markets on guard for additional tightening in monetary policy.

Worries about a possible trade war with Japan also curbed interest in buying stocks. The Clinton Administration reinstated a trade law provision known as Super 301, giving the government a mechanism to retaliate against Japan if that country doesn’t try to reduce its $59.3-billion annual trade surplus with the United States.

Following the White House announcement, the dollar fell against the yen, slipping to 103.77 yen in late New York trading, from Wednesday’s 104.20. But the U.S. currency gained ground against many other foreign currencies.

Investors were also worried about possible fallout from market turmoil in Europe, where bond prices have fallen dramatically in response to fears of higher interest rates in Germany. Stock prices on many small, emerging markets overseas--many of which have risen dramatically over the past year--have also been falling.

Those events have caused big losses for some major investment funds, known as hedge funds. One fund controlled by legendary speculator George Soros confirmed last week that it has lost about $600 million in global markets. Large losses also reportedly have been sustained by speculator Michael Steinhardt.

Perhaps more worrisome is the fact that some major banks that have large trading operations--notably Bankers Trust and J.P. Morgan--also reportedly have taken big hits. Bankers Trust shares continued to fall Thursday, losing 2 to 76 1/2 after dropping 2 1/4 on Wednesday. Most other banking issues were also lower.

“A lot of the hedge funds were making big bets that rates would come down in Europe, and they blew it,” said Philip Dubuque, a fund manager at Chestnut Hill Management in Boston. “And when the banks get nervous, they get nervous very quickly,” in turn dumping declining bonds at a loss, he said.

But market watchers said the problems at banks did not appear to be severe or widespread, and that troubles in the European bond market would have only a limited impact on the United States.

Jeremy Siegel, a professor of finance at the Wharton School of Business, said the losses on bond trading were mainly a “retracing” of earlier gains. Only a dramatic, sustained rise in interest rates, he said, would be a real threat to the big trading operations.

Many technology stocks managed to buck the downward trend. On the Nasdaq, Dell Computer topped the actives list, spurting 2 1/8 to 27. Dell posted fourth-quarter results that exceeded Wall Street expectations.