Financial Markets : Dow Off 34 on Currency, Foreign News
Weak foreign share prices, a tumbling U.S. dollar and worries about inflation and the economy combined Monday to push stock prices broadly and sharply lower.
Smaller companies’ stocks were once again the hardest hit, with the more volatile Nasdaq market dropping about 1.4%.
The Dow Jones industrial average tumbled 34.88 to 3,741.90; in the broader market, declining issues outnumbered advances by about 7 to 2 on the New York Stock Exchange.
Big Board volume came to 229.52 million shares, down from 386.99 million for the previous session.
Share prices headed lower from the opening bell, with foreign stock markets off sharply. In Europe, investors worried about inflation, traders said, and in Tokyo, about the strengthening dollar.
In Tokyo, the Nikkei 225-share average ended 351.27 points, or 1.6%, lower at 21,152.03. In Frankfurt, the 30-share DAX average fell 81.90 points, or 3.99%, to 1,968.82, to close at its lowest level since Oct. 4, 1993. In London, the Financial Times 100-share average fell 51.8 points, or 1.7%, to 2,971.1, and the Paris bourse closed down 2.6%.
In Mexico City, the Bolsa index fell 26.89 points, or 1.16%, to 2,283.61.
“The problems in Europe proved too much for the U.S. markets to overcome,” said James Solloway, director of research at Argus Research Corp.
At the same time, the dollar slid to an eight-month low against the German mark and continued its slide against the Japanese yen.
That generated fears among some investors that the Federal Reserve Board will feel compelled to nudge interest rates higher for what would be a fifth time this year when its policy-setting Federal Open Market Committee meets in early July, traders said.
A weak dollar could make imports more expensive and prompt inflation. Still, analysts said, further Fed action is unlikely just now because recent data shows the economy may be slowing.
The U.S currency finished at 1.60 German marks in New York, down from 1.611 on Friday and its lowest since Oct. 12. The dollar also fell 0.90 to 101.90 Japanese yen in New York.
The dollar’s fall against the mark and yen alone was enough to concern some investors, traders said.
Don Hays, investment strategist at Wheat First Butcher & Singer, described Monday’s Wall Street action as a tug-of-war between investors worried about inflation and those worried about the economy.
Still, the widely watched Commodity Research Bureau index of 21 futures contracts, led by grain prices, tumbled 4.5 points to 234.87.
Prices for corn and soybean futures collapsed on the Chicago Board of Trade as forecasts for cooler, wetter Midwestern weather doused drought fears. Wheat and oat futures also sank.
That helped support the bond market, analysts said. Bond yields ended the day higher, pushing prices down again, in another negative for stocks.
The Treasury’s main 30-year bond yield rose to 7.46% from 7.44% on Friday.
Bond investors don’t like word of rising inflation, which erodes the value of fixed-income securities such as Treasuries. Stock investors don’t like to see interest rates rise, because that increases the cost of money to corporations and therefore makes shares less appealing.
Among other major market indicators, the Standard & Poor’s index of 500 stocks dropped 2.97 to 455.48, and the NYSE composite index fell 1.89 to 251.40. The Nasdaq composite index dropped 10.50 to 718.85.
Among other market highlights:
* Worry about the economy meant stocks such as autos, paper, chemicals and heavy machinery that are sensitive to economic cycles were among the hardest hit. Chrysler fell 7/8 to 47 7/8 and Caterpillar dropped 2 3/8 to 106 3/8.
* Philip Morris, whose chief executive resigned unexpectedly over the weekend, rose 3/8 to 50 3/4 in active NYSE trading.
* IDB Communications fell 7/8 to 7 11/16 after a New York Times article disclosed details about the company’s split with its auditors.
* U.S. Healthcare rose 2 1/8 to 43 1/8 amid rumors that Johnson & Johnson may be considering the smaller company for a takeover.
* Coca-Cola gained 1/4 to 40 1/4 after S.G. Warburg analysts made positive comments about the company in a research report.
* Novell fell 9/16 to 15 1/16. The computer company will license its Network Navigator software and data distribution technology to Proginet Corp.
* 3Com rose 1 3/4 to 48 1/8 after reporting higher earnings late last week.
* Orion Pictures fell 5/16 to 2 15/16. The company said it does not expect to have sufficient cash flow during fiscal 1995 to make scheduled payments to some lenders.
