FINANCIAL MARKETS : Modest Rally Ends as Stocks Follow Bond Prices Down : Markets: Industrial average drops 19 as interest rates move higher. Dow still ends week with gain of 38.30 points.
Wall Street broke a three-day winning streak on Friday, resuming its decline as interest rates moved higher.
Smaller stocks lost more ground than blue-chip issues, with the Nasdaq index shaken by declines in technology shares.
The Dow Jones average fell 19 points to 3,674.26, but still ended with a gain for the week of 38.30 points. The broader market also retreated with declining issues outnumbering advances by about 7 to 4 on the New York Stock Exchange.
After three days guiding the stock market back from shattering losses, bond prices lost ground on Friday, pushing up yields, which move in the opposite direction. The return to investors on the benchmark 30-year Treasury bond, a guide to long-term interest rates in general, rose to 7.26% from Thursday’s 7.20%. Its price fell 17/32 point, or $5.31 per $1,000 in face value.
Bonds began to rise after Federal Reserve Gov. Lawrence Lindsey said the shortage of U.S. jobs is “diminishing.”
Later, Chicago Fed president Silas Keehn said some areas of the manufacturing sector are approaching capacity limits.
Some jittery stock investors worried again that rising rates would makes shares less appealing and raise the cost of borrowing to corporations.
Since the Federal Reserve nudged rates higher on Feb. 4 and then again on March 23, rates have shot up and the stock market had declined nearly 9% until Monday. Since then the Dow average has recovered to a deficit of about 7.4%.
Stock investors are concerned that further evidence of inflation could spur the Fed to tighten credit again. Word on inflation is to come in government reports Tuesday and Wednesday on consumer and producer prices.
Indeed, some market players stayed away on Friday, resisting any significant commitments ahead of those numbers, said Hugh Johnson, chief investment officer, First Albany Corp.
“Stocks fell with bonds. It’s as simple as that,” said David Shulman, chief market strategist at Salomon Bros.
Among other major market indicators, the Standard & Poor’s list of 500 stocks fell 3.78 to 447.10 and the Nasdaq composite index dropped 6.46 to 748.71, but added 5.26 for the week.
Most of the selling in stocks was later in the session as investors worried about holding on to shares over the weekend amid so much uncertainty about the direction of rates, said James Melcher, founder and president of Balestra Capital.
Stocks ended mixed abroad with London’s Financial Times 100-share average losing 8.2 points to finish at 3,120.8. Shares finished higher on the German bourse with the 30-share DAX average rising 1.93 points to 2,203.34 and Tokyo’s 225-share Nikkei average rose 44.01 points to 19,934.99.
In Mexico City, the Bolsa slid 44.08 points, or 1.94%, at 2,229.25.
Among the market highlights:
* Marvel Entertainment Group fell 2 to 19 after it told analysts it expects lower second-quarter earnings.
* Retailer Best Buy rose 2 to 73 3/4. Morgan Stanley started a buy rating on the stock.
* Auto stocks retreated on a combination of profit taking and concern about shipment delays stemming from the ongoing strike by truckers represented by the Teamsters’ union. General Motors fell 2 3/8 to 57 3/4, Chrysler fell 2 7/8 to 51 and Ford ended off 2 1/4 to 58.
* Deere fell 2 7/8 to 85 1/2, while Georgia Pacific tumbled 1 1/4 to 62 3/4.
Technology stocks were also hard hit. Microsoft tumbled 2 3/4 to 87 and Intel lost 1 1/4 to 69 3/8. * Western Publishing fell 2 3/4 to 11 1/2. Arbitragers said investors were disappointed that the company’s puzzles and game unit was sold and not the entire company.
* Mid Atlantic Medical Services rose 5 1/4 to 49 1/8 after predicting a rise in first-quarter profits.
In other markets, the dollar rose against the Japanese yen as foreign exchange markets digested the resignation of Japan’s prime minister, Morihiro Hosokawa. In New York, the dollar closed at 105.15 Japanese yen, up from 104.85 yen Thursday. The greenback fell against other major currencies. Gold and silver prices also finished higher.
Elsewhere, lumber future prices plunged to their lowest level in more than five months on the Chicago Merc on signs that rising mortgage rates have choked off demand for building materials.
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Market Roundup, D4
