FINANCIAL MARKETS : Dow Slides 42 as Interest Rates Surge; Dollar at Low
Blue chip stocks suffered another beating Thursday as a surge in long-term interest rates threw the Dow Jones industrial average for a huge loss.
The dollar slid to its third consecutive postwar low against the Japanese yen amid fears that the major economic powers won’t agree on measures to support the U.S. currency.
The Dow closed down 42.09 points at 3,624.96, with declining issues leading advances by nearly 7 to 5 on the New York Stock Exchange.
Thursday’s selling was concentrated in large-company stocks, and broad market indexes ended mixed. The NYSE’s composite index fell 1.56 to 245.16. The Standard & Poor’s composite fell 3.36 to 444.27. But the Nasdaq composite index of mostly smaller companies rose 1.95 to 705.96.
Big Board volume totaled 293.41 million shares, up from Wednesday’s 264.43 million.
Treasury bond yields soared after the Purchasing Management Assn. of Chicago said its index of prices paid by purchasing managers rose to 69.7% from 63.6%, and its employment index advanced to 58.1% from 57.5%.
The yield on the 30-year benchmark bond climbed to 7.60%, up from 7.51% on Wednesday.
The Midwest purchasing managers report was examined for clues to a closely watched national purchasing managers survey that will be released today.
It stirred fears of inflation in a market that is already concerned that the recent drop in the dollar will force the Federal Reserve Board to tighten interest rates when it meets next week. Higher rates would raise corporate costs and lure investors away from stocks.
The stock market also got no help from the dollar, which set another new postwar low against the Japanese yen.
Compounding the dollar’s problems Thursday were conflicting statements from American, Japanese and German officials as to whether the currency’s recent weakness would be discussed at the Group of Seven meeting in Italy next week.
Analysts have speculated that the United States and other nations will coordinate economic policies to support the dollar, possibly by adjusting interest rates to stimulate capital flows to the United States.
The dollar closed in New York at 98.50 yen, down from 98.70 on Wednesday. Against the German mark, the dollar rose in New York to 1.588 from 1.586.
Stocks also sank as portfolio managers “rid themselves of stocks they don’t want in their portfolios at the end of the quarter,” said George Pirrone, senior trader at Dreyfus Corp. “They’re not replacing them today.”
Richard Meyer, head of equity trading at Ladenburg, Thalmann & Co., said investors are getting out of stocks ahead of the long holiday weekend in favor of short-term Treasury bonds and cash. The market is closed Monday for the Fourth of July.
The stock and bond markets reacted little to a Commerce Department report that personal income rose 0.6% in May, about on target with economists’ expectations. Consumer spending increased 0.4%, double the 0.2% growth that had been expected.
In another report, the government said orders to factories rose 0.6% in May, a bit lower than the expected 0.7% increase.
“It’s just a continuation of the same old saga: Weak dollar, strong commodity prices, lower bond prices all add up to a soggy stock market,” said Jack Shaughnessy, director of research at Advest.
Among Thursday’s highlights:
Large-company stocks led the market lower as portfolio managers shed large blocks of holdings. Among the 30 components of the Dow industrial index, Caterpillar fell 2 1/8 to 100, Procter & Gamble lost 1 1/4 to 53 3/8, 3M slipped 1 1/8 to 49 1/2, IBM fell 1 5/8 to 58 3/4, Deere lost 1 1/8 to 67 5/8 and General Electric shed 1 to 46 5/8.
* British Airways led the action on the New York Stock Exchange and fell 3/8 to 57 5/8. United Health Care was second and down 2 3/4 at 45 1/8 amid a broad-based decline in health care stocks after the House Ways and Means Committee approved legislation that includes health care price controls.
* CBS rose 47 to 310 and QVC advanced 5 5/8 to 38 after the two companies said they would merge.
* Nynex and Bell Atlantic said they are merging their cellular telephone businesses in a joint venture a Nynex official valued at $13 billion. Nynex ended up 1 at 37 7/8 and Bell Atlantic rose 5/8 to 56.
* Burlington Northern and Santa Fe Pacific said they plan to merge. Burlington Northern dropped 1/8 to 53 3/8 and Santa Fe gained 1/4 to 20 5/8.
Stocks closed lower in Europe. London’s Financial Times 100-share average closed down 27.1 points at 2,919.2, while the Frankfurt 30-share DAX average closed 20.96 points lower at 2,025.34. Share prices were also down sharply in Paris.
In Tokyo, the Nikkei 225-share average ended up 162.93 points to 20,643.93.
Mexico City’s Bolsa index retreated 8.35 points to 2,262.58.
Market Roundup, D5
