Dow Stages Late Rally as Bond Yields Retreat
Stocks rebounded from early losses to close modestly higher Wednesday, as a morning selloff in the bond market turned into a rally by afternoon.
The Dow Jones industrials closed up 2.46 points at 3,760.83, after losing 25 points early on.
The bond market took a hit in morning trading, responding to the National Assn. of Purchasing Management’s report on business activity in May.
The report showed steady growth in the nation’s manufacturing sector, reinforcing the view that the economic expansion hasn’t slowed to any significant degree.
More upsetting for bond traders were details on price increases for industrial goods. The purchasing managers report said robust business activity caused prices to rise across the board for manufacturers in May, sparking fears of higher inflation.
The report also indicated that suppliers are having trouble delivering materials on time, which can put further pressure on prices.
But after surging in the morning, bond yields began to fall again in the afternoon. Traders said investors were responding to a dive in commodity prices, led by metals.
Gold futures for June sank $3.60 to $383.50 an ounce on the Comex, while silver tumbled 20 cents to $5.35. July copper futures slumped 2.75 cents to $1.01 a pound.
The Commodity Research Bureau index of key commodities, which had jumped 4.57 points Tuesday, fell 1.61 points to 233.84.
In the Treasury bond market, the yield on 30-year issues finished at 7.39%, compared to 7.43% on Tuesday.
Traders said the bond market’s ability to overcome the manufacturers report may indicate that bond yields are ready to stabilize or even slide from here.
Lending support to bonds Wednesday were rumors that the Federal Reserve Bank of New York, on behalf of foreign central banks, bought intermediate-range Treasury securities.
In the stock market, winners edged losers by 12 to 9 on the Big Board, as volume rose to 278 million shares.
Wall Street was able to overlook another slump in some overseas markets. In London, the FTSE-100 index plunged 38.6 points to 2,931.90 as British government bond yields rose to their highest level in 19 months.
In Paris, the CAC stock index slid 50.22 points to 1,979.68. But in Frankfurt, the DAX stock index added 2.00 points to 2,129.70.
Among U.S. market highlights:
* Computer chip makers rallied on new optimism about sales and earnings growth in the second half of this year. Xilinx surged 5 3/4 to 46 3/4, helped by some positive analyst comments. Also, Motorola rose 1 5/8 to 48 3/8 and Texas Instruments leaped 4 3/8 to 84 5/8.
* Bank and insurance stocks were also among the day’s big winners, suggesting that more investors are expecting interest rates to stabilize. Chemical Bank surged 1 3/8 to 39 3/4, Chase Manhattan added 1 5/8 to 39 3/8, Citicorp advanced 1 1/8 to 40 5/8, Chubb jumped 2 to 82 5/8 and SunAmerica gained 1 3/4 to 39 3/4.
* In the health-care sector, U.S. Surgical zoomed 2 3/4 to 21 3/4 amid rumors that the Swiss drug firm Ciga-Geigy may be considering making a takeover bid for it. In other overseas trading, Tokyo’s 225-share Nikkei index continued to streak, adding 79.52 points to 21,053.11.
But in Mexico City the Bolsa index dropped 44.75 points to 2,438.98 as profit takers struck.
