Dow Stages Late Rally as Bond Yields Retreat
Blue chip stocks rebounded from an early 30-point drop to close modestly higher as long-term bond yields retreated after bouncing sharply higher in early trading.
The Dow Jones industrial average, as well as broader stock performance indicators, managed to end with modest gains after trading with deficits for most of the day. At the close, the Dow industrials sported an increase of 2.46, bringing the blue chip gauge to 3,760.83.
In the bond market, the long bond finished the day at 7.39%, down from Tuesday’s 7.43% as tumbling commodity prices contributed to an afternoon buying spree in bonds. The 30-year bond’s price, down more than one-half point in early trading, ended up 13/32, or $4.06 per $1,000 in face value. Bond yields and prices move in opposite directions.
On Wall Street, advancing stocks held the majority in the closing tally on the New York Stock Exchange, outpacing declines by about 5 to 4. Big Board volume expanded to 278.46 million shares from 215.61 million Tuesday.
Broader market measures also closed higher. The NYSE composite index rose 0.61 to 252.85, and Standard & Poor’s 500-stock index climbed 1.13 to 457.63. The Nasdaq composite index of mostly smaller stocks finished on positive ground at 735.52, up 0.33.
Initially, traders dumped bonds after the National Assn. of Purchasing Management’s monthly report on business fanned inflation fears. At the height of the morning selling, the Dow average was down about 25 points and the key 30-year bond was off nearly 3/4 point.
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.
However, details about prices obtained from the survey were particularly upsetting for bond traders. The survey showed the widest price increases since October, 1990. It also indicated that suppliers are having trouble delivering materials on time, which can put further pressure on prices.
But Treasury bond prices reversed direction by early afternoon in a shift in market sentiment brought on by a sharp drop in prices of precious metals and other commodities, sending the Commodity Research Bureau index down 1.61 to 233.84.
Gold weakened the New York Comex, closing at $383.50 an ounce, off $3.60 an ounce. Silver finished at $5.333 an ounce, down 20.3 cents an ounce.
Slumping stock and bond prices in several of the major European financial centers didn’t have a lasting impact on Wall Street.
Among the market highlights on Wednesday:
* Computer chip makers’ stocks rallied after optimistic comments about the outlook for one company, Xilinx, sparked enthusiasm about the entire sector. Xilinx surged 5 3/4 to 46 3/4 and carried others aloft, such as Motorola, which rose 1 3/8 to 48 1/8, and Texas Instruments, up 4 3/8 to 84 5/8,
* U.S. Surgical zoomed up 2 3/4 to 21 3/4 in heavy NYSE trading amid rumors that the Swiss drug company Ciga-Geigy might be considering making a takeover bid for it. Both companies declined to comment.
* One of the session’s biggest losers was IDB Communications, which plunged 7 3/8 to 7 1/8 on news that its auditor, Deloitte & Touche, had resigned.
* Among bank stocks, Chemical Bank rose 1 3/8 to 39 3/4, Chase Manhattan added 1 5/8 to 39 3/8 and Citicorp advanced 1 1/8 to 40 5/8. Insurers American International Group gained 1 3/4 to 95 1/8 and Chubb ended up 2 to 82 5/8.
In overseas trading, London’s Financial Times 100-share average fell 38.6 points to 2,931.9, its lowest finish since last July. In Frankfurt, the DAX 30-share average ended up 2 points at 2,129.70. Tokyo’s 225-share Nikkei average ended up 79.52 points at 21,053.11.
Mexico City’s Bolsa index closed 44.75 points lower at 2,438.98.
In the currency market, the dollar was lower in global foreign exchange trading Wednesday, falling modestly as stock and bond prices plunged on inflation fears.
In New York, the dollar fetched 104.55 Japanese yen, down from 104.85 yen late Tuesday and 1.646 German marks, down from 1.647.
