Stocks Rally for Gain After Bond Market Eases
Market Overview
* The stock market bounced back from early losses to close mostly higher, helped by a calm bond market. Auto and technology shares led the market.
* Interest rates finished modestly lower after the Federal Reserve Board’s periodic commentary on the economy indicated few signs of accelerating inflation. In the muni market, California sold $700 million in new bonds.
* The dollar rose against the Japanese yen, buoyed by new hopes for possible easing of U.S.-Japanese trade frictions.
Stocks
After languishing much of the day as the bond market remained on edge, stocks rallied toward the session’s close.
The Dow Jones industrial average inched up 1.69 points to 3,853.41. Although losers narrowly outnumbered winners on the New York Stock Exchange, most broader stock indexes also closed higher.
The Dow was off nearly 20 points early in the day as bond yields rose. But the bond market’s tone improved later, as traders took a closer look at the Fed’s so-called beige book report on the economy.
The beige book, which shows how the economy is faring by region, indicated that growth is on a moderate course with few signs of inflation.
Fear of inflation has pushed bond yields sharply higher in recent weeks. The Fed raised short-term interest rates Feb. 4 in an effort to slow the economy, and many investors have been expecting it to boost rates again soon. But the beige book suggested the Fed need not act quickly.
Still, “the consensus is that while we may not have to go any higher in (interest) rates right away, the perception certainly is that we’re not going any lower,” said Ned Collins, head block trader at Daiwa Securities America.
Among Wednesday’s highlights:
* Technology stocks led the market after the semiconductor industry reported continuing strong orders in February. The Nasdaq industrial index, heavy with tech shares, rose 2.11 points to 840.50, just below its all-time high of 841.47.
Among semiconductor issues, Intel rose 7/8 to 71 5/8, Texas Instruments gained 1 1/2 to 84 1/4, Micron Technology rose 3 to 80 3/8 and Motorola added 2 at 108 3/8.
* Auto stocks renewed their advance. Ford leaped 1 5/8 to 65 3/8, Chrysler gained 1 1/4 to 60 7/8 and GM added 5/8 to 62 5/8.
* Drug stocks were strong. Warner Lambert rose 1 1/8 to 64 1/2, Schering-Plough gained 1 1/4 to 59 7/8, Merck inched up 5/8 to 32 3/8 and Amgen was up 3/4 to 41 5/8.
Also in the health care group, hospital giant National Medical Enterprises continued its rebound, rising 3/4 to 17 1/4.
* On the downside, paper stocks fell after International Paper told analysts they should lower their first-quarter earnings estimates because of severe weather and low prices on printing papers. IP fell 2 3/4 to 71 1/2, Georgia Pacific lost 1 3/4 to close at 70 and Stone Container eased 3/8 to 15 5/8.
* General Instrument tumbled 2 5/8 to 45 1/2. The New York Times reported the company is being investigated by the Justice Department for possible antitrust violations.
Overseas markets were weak. Tokyo’s Nikkei average lost 59.21 points to 19,839.18, while Frankfurt’s DAX index eased 7.95 points to 2,116.09 and London’s FTSE-100 fell 17.7 points to 3,246.7.
In Mexico City, the Bolsa index had another bad day, losing 38.33 points to 2,533.08 as short-term interest rates edged up. NYSE-listed Telmex fell 1 7/8 to 65 1/8.
Israel’s key stock market index dove roughly 5% after an investigation into stock manipulations widened to include officials of one of the country’s major banks.
Other Markets
Interest rates eased across the board, aided by the Fed beige book’s comments on low inflation.
The yield on 30-year Treasury bonds slipped to 6.83% from 6.87% on Tuesday, and shorter-term yields also fell.
The bond market’s relative calm helped California, which sold $700 million in new general-obligation bonds Wednesday to raise cash for voter-approved projects, including new schools and prisons.
The tax-exempt California bonds, in stepped maturities from one to 30 years, were generally well received by institutional investors, traders said. The lead underwriter of the sale, Lehman Bros., said it has already placed all of the bonds with investors except for some maturing between 1996 and 2000 and some in the 2005 maturity.
The bond offering’s average interest cost to the state was 5.56%. The 30-year issues yielded 6.0%; five-year issues yielded 4.80%.
