Yields Fall on Mood of Fed; Dow Loses 3.70
Bond prices increased and yields dropped for the fourth consecutive trading day Monday, as traders and investors gained confidence that interest rates will remain stable in coming weeks.
Market players said they were encouraged by the comments of three Federal Reserve Board governors quoted in Monday’s New York Times. The Fed officials said recent economic figures, including Friday’s unemployment report, indicate a slowing expansion and a diminishing risk of inflation, reducing the likelihood of a further rise in interest rates.
The yield on the main 30-year bond fell to 7.22% from 7.26% on Friday. Its price, which moves in the opposite direction, rose 15/32 point, or $4.69 per $1,000 in face value.
Monday’s rally was fueled by the Times report, which suggested greater comfort at the Fed with the country’s economic performance.
The outlook for steady interest rates gave a particular boost to shorter-term Treasury securities, because the Fed concentrates on short-term rates in setting monetary policy.
Higher rates on new securities would tend to depress the value of already-sold Treasurys, which pay a fixed rate of interest.
Bonds were also bolstered as plunging corn and soybean led a sharp drop in the Commodity Research Bureau index, which helped support the notion that inflation remained under control. The CRB index fell 3.21 to 228.84.
Weekend rains in the Midwest triggered selling of corn and soybeans, and that influenced other other commodities prices.
Stocks closed mixed on Wall Street.
A sharp upward move in share prices mostly evaporated late in the session as investors sold stocks that had been run up in value. Smaller capitalization stocks fared better than larger issues amid the computer-program-driven selling.
The Dow Jones average fell 3.70 points to 3,768.52, though advancing issues outnumbered declining ones about 11 to 7 on the New York Stock Exchange.
Big Board volume was 259.08 million shares, down from the 270.37 million traded Friday.
Stocks moved higher from the opening bell as bond yields fell.
Analysts said stock investors were also encouraged that a low inflation rate would probably put a hold on further Fed interest rate hikes.
Still, in the last minutes of trading, stock prices dropped back amid waves of computer-directed selling.
“It was program activity. There was no one event to account for the selling,” said Eugene Peroni, director of technical research at Janney Montgomery Scott Inc.
Smaller capitalization stocks, which are generally not as susceptible as blue chip issues to program trading, managed to advance for a fourth day. The Nasdaq composite index rose 1.05 to 743.43.
Stocks ended mixed overseas. Tokyo shares ended sharply lower in thin trading on arbitrage-linked selling and sales by financial institutions. The Nikkei 225-share average ended 227.54 points off at 20,726.65.
In Europe, Frankfurt’s 30-share DAX average closed 14.68 points higher at 2,163.07; London’s Financial Times 100-share average rose 11.6 points to close at 3,009.4.
Mexico City’s Bolsa index rose 29.86 points, or 1.21%, to 2494.84.
Among the market highlights:
* Syntex led the NYSE most-active list, falling 1/8 to 23. Roche Holding Ltd. has extended the deadline for its offer to buy Syntex.
* Microsoft, meanwhile, led the Nasdaq most-active list, rising 1 5/8 to 54 1/2. The stock entered the S&P; 500 index effective at Monday’s close.
* Discount computer retailer CompUSA tumbled 2 5/8 to 9 3/8 after saying late Friday that its fourth-quarter results would not meet analysts’ expectations.
* Analysts detected some investor rotation into some recently lagging groups, such as pollution-control companies. Browning Ferris rose 1 3/8 to 32; Sanifill added 3/8 to 25 1/8.
* Sara Lee climbed 7/8 to 23 5/8 after it announced a corporate restructuring.
* Harveys Casino fell 2 1/4 to 14 5/8. It said its second-quarter earnings would be at break-even. It paid 21 cents a share a year ago.
* PepsiCo fell 1 1/8 to 34 5/8 after Goldman Sachs removed the stock from its recommended list.
* U.S. HealthCare rose 1 7/8 to 42 on favorable analyst comments. Salomon Bros. said its estimates for the health maintenance organization’s second quarter are probably too low.
In the currency market, the dollar finished mixed in quiet trading, closing unchanged against the German mark and Japanese yen and falling against other major currencies. However, analysts found signs of strength in the greenback’s performance.
