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 Friday, resuming its decline as bond yields moved higher.
Smaller stocks lost more ground than blue-chip issues, with the Nasdaq composite index shaken by declines in some technology shares.
The Dow Jones industrials were off more than 30 points at midday, but closed with a loss of 19.00 points at 3,674.26. For the week, the index gained 38.30 points, helped by Tuesday’s big rebound.
The broader market also was weak Friday, with declining issues outnumbering advances by about 7 to 4 on the New York Stock Exchange. Trading volume slowed to 264 million shares.
“Stocks fell with bonds. It’s as simple as that,” said David Shulman, chief market strategist at Salomon Bros. in New York.
After three days guiding the stock market higher, the bond market was hit by renewed selling Friday.
The yield on the 30-year Treasury bond, a guide to long-term interest rates in general, rose to 7.26% from Thursday’s 7.20%.
Traders said some investors were spooked by comments from Federal Reserve Gov. Lawrence Lindsey, who suggested that the U.S. job market is tightening.
Also, Chicago Fed president Silas Keehn said some areas of the manufacturing sector are approaching capacity limits.
Bond investors view any comments from the Fed regarding the economy’s growth as potential warning signs of further interest rate hikes. The Fed twice raised short-term rates in the first quarter, and the result was a surge in bond yields and a plunge in stock prices, much of which occurred in the last two weeks.
The bond market also was jittery Friday ahead of next week’s batch of economic reports. The government will report on March producer inflation on Tuesday, and March consumer inflation on Wednesday.
Any new signs of inflation could force the Fed to again raise short-term interest rates sooner rather than later.
Indeed, 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.
Among the market highlights:
* Auto stocks tumbled on a combination of profit taking and concern about shipment delays stemming from the ongoing strike by truckers represented by the Teamsters’ union. A stronger dollar also hurt, because it may result in lower prices on Japanese cars here.
General Motors dove 2 3/8 to 57 3/4, Chrysler plunged 3 to 50 7/8 and Ford ended off 2 1/4 at 58 3/8.
* Profit-taking also hit some other industrial shares. Deere fell 2 7/8 to 85 1/2, Georgia Pacific lost 1 1/4 to 62 3/4 and Bethlehem Steel sank 7/8 to 20 3/4.
* Technology stocks also gave back some of their recent gains. Microsoft tumbled 2 3/4 to 87, Texas Instruments slid 3 1/8 to 79 3/8 and Intel lost 1 1/4 to 69 3/8. Also, Western Digital slumped 2 to 17 1/2 despite Thursday’s strong quarterly profit report.
* On the plus side, some banking issues were strong. NationsBank leaped 1 5/8 to 49 3/8, First Chicago surged 7/8 to 50 5/8 and Wells Fargo added 1 1/2 to 148.
* In the media sector, 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. Also, comic book giant Marvel Entertainment Group plummeted 2 to 19 after it told analysts it expects lower second-quarter earnings.
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 index adding 1.93 points to 2,203.34.
In Tokyo, the Nikkei average rose 44.01 points to 19,934.99 despite news of Prime Minister Morihiro Hosokawa’s resignation.
In Mexico City, the Bolsa slid 44.08 points to 2,229.25.
In other markets, the dollar rose against the Japanese yen as foreign exchange markets digested the resignation of Hosokawa. In New York, the dollar closed at 105.15 yen versus 104.85 Thursday.
Gold and silver prices also finished higher.
Elsewhere, lumber futures 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
