FINANCIAL MARKETS : Rates Climb, Dow Off as Fed Meeting Nears
Stocks fell and interest rates rose Monday as the markets braced for the possibility of another credit-tightening move by the Federal Reserve Board.
The Dow Jones industrials fell 30.80 points to 3,864.85, reversing Friday’s 30.51-point gain. But trading was slow.
In the bond market, the yield on 30-year Treasury bonds rose to 6.96% from Friday’s 6.90%, and short-term rates also jumped.
The Fed’s policy-making committee meets today, and many analysts believe the central bank will decide to raise short-term interest rates another quarter of a point to reflect the strengthening economy.
The Fed tightened credit a quarter of a point on Feb. 4, the first official interest rate hike in five years. At that time, Fed Chairman Alan Greenspan said the central bank felt that short-term interest rates needed to be higher to restrain the economy and thus inflation.
Greenspan hasn’t said for sure that another rate hike is imminent, but investors have pushed short-term T-bill rates up in recent weeks to reflect another quarter-point tightening.
Yields on longer-term bonds rose Monday partly on speculation that the Fed could take a more dramatic step, some traders said. That could include raising the discount rate, the rate at which banks borrow from the Fed, from 3% to perhaps 3.5%.
Although the Fed’s goal is to fight inflation--a plus for bonds in the long run--traders are concerned that a faster-than-expected rise in short-term interest rates could push long-term rates up as well, at least initially.
In the stock market, meanwhile, some of Monday’s selling was related to Friday’s surprise rally, which was affected by the quarterly expiration of key stock options and futures contract.
“What we’re seeing is the flip side of Friday’s close,” said analyst Trude Latimer of Ferguson, Andrews & Associates.
Slow trading volume Monday suggested that many investors were simply sidelined rather than bearish. While losers topped winners 1,588 to 614 on the New York Stock Exchange, turnover was just 247 million shares.
Smaller stocks, which led the market higher last week, gave back some of their gains. The Nasdaq composite index fell 6.63 points from its record close Friday, to 797.30.
One report Monday suggested that any surprise market rally in the weeks ahead could become explosive: The NYSE said “short” interest rose to a record 1.37 billion shares as of March 15, up from 1.32 billion in February.
Short interest measures the number of borrowed shares sold, a bet on lower prices. In a rally, short sellers are often forced to buy shares to cover their wrong bets, giving a further boost to prices.
Among Monday’s highlights:
* Profit taking hit many industrial stocks. PPG Industries lost 1 1/8 to 78 1/4, Phelps Dodge fell 1 1/2 to 58, Chrysler eased 3/4 to 57 1/4, Boeing dropped 1 to 46 and International Paper gave up 1 5/8 to 68 5/8.
* Financial stocks were broadly lower on interest rate jitters. Twentieth Century Industries lost 1 1/4 to 20 1/4, Countrywide Credit sank 1 to 23 3/4, Merrill Lynch fell 7/8 to 42 1/8 and NationsBank was off 1/2 to 47 1/2.
* Sellers also targeted casino stocks, though there was no particular news. Caesars World fell 1 7/8 to 51, Circus Circus dropped 1 1/4 to 36 3/4 and Hilton sank 2 to 67 7/8.
* Technology stocks were mixed. Advanced Micro Devices rose 1 1/8 to 30 7/8, Powersoft leaped 3 1/4 to 66 3/4 and Micron Technology surged 4 1/4 to 92 3/4. But Lotus tumbled 3 3/4 to 80 1/4 and Microsoft lost 1 1/2 to 83 1/4.
* Among the day’s big losers, Amtech plunged 11 1/8 to 21 3/8. The company, which makes electronic tag reading systems, said it did not get a contract awarded jointly by New York, New Jersey and Pennsylvania for a new electronic toll-collection system for key roads.
* Latin American shares trading in U.S. markets were trounced, continuing to follow their home markets lower on worries about interest rates, inflation and political issues. Among closed-end funds, Brazil Fund dropped 2 1/8 to 24 3/4, Chile Fund sank 2 to 42 1/2 and Mexico Fund slid 1 1/8 to 30 5/8.
NYSE-traded Latin company stocks declining included Grupo Tribasa, off 2 3/4 to 28 1/2; Telefonica de Argentina, down 3 7/8 to 63 3/4; Telmex, down 1 7/8 to 58 3/4, and Chilean Telefon, off 3 3/4 to 89 1/4.
In foreign markets, Mexico City’s exchange was closed for a holiday.
In London, the FTSE-100 index dropped 20.1 points to 3,198.0. Frankfurt’s DAX index lost 24.33 points to 2,131.28. In Tokyo, the Nikkei index slid 122.71 points to 20,469.45.
Hong Kong shares had a particularly bad day: The Hang Seng index plunged 465.28 points, or 5.1%, to 8,667.03, its lowest close since Oct. 14.
In other markets:
* Crude oil climbed to a six-week high ahead of Friday’s OPEC meeting in Geneva. The cartel will discuss possible production cuts to boost prices.
Light, sweet crude oil for April delivery shot up 49 cents to $15.37 a barrel on the New York Merc.
In metals trading, gold eased $1.30 to $385.80 an ounce on the Comex; silver rose 0.7 cent to $5.42.
* The dollar dropped slightly against most currencies, as many participants stayed on the sidelines or sold dollars because of uncertainty ahead of the Fed meeting.
Market Roundup: D8
