FINANCIAL MARKETS : Dow Slides 42 as Interest Rates Surge; Dollar at Low
Wall Street closed the first half of the year on Thursday with a rout in blue chips, as interest rates jumped sharply. But smaller stocks staged a rally.
Meanwhile, 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.
In the stock market, the Dow Jones industrials tumbled 42.09 points to 3,624.96, in a selloff that keyed off the slumping bond market.
Yields rocketed across the board, in a selloff reminiscent of the April and May turmoil in bonds. The yield on the 30-year Treasury bond shot up to 7.60% from 7.51% on Wednesday. The yield on five-year T-notes rose to 6.95% from 6.87%.
Bond yields were stoked after the Purchasing Management Assn. of Chicago said its index of prices paid by corporate purchasing managers rose to 69.7% in June from 63.6% in May--which bond traders immediately seized upon as a fresh sign of mounting inflation in the economy.
In addition, the survey of the heavily industrial Chicago area is seen as providing clues into results of a closely watched national survey due today.
Adding to inflation concerns was an increase in the number of help-wanted ads in U.S. newspapers. The Conference Board, a business research group, reported its widely watched help-wanted advertising index hit 123 in May, up from 117 in April and 100 a year ago.
With the weakening dollar already unnerving bond traders, any hints of a stronger-than-expected economy--and thus inflation--are enough to push the market over the edge, analysts warn.
The Federal Reserve Board’s policy-making committee will meet on Tuesday, and bond investors worry that the central bank now will feel compelled to raise short-term interest rates for a fifth time this year, both to further restrain the economy and to try to support the dollar.
On Thursday, the dollar continued its descent. It New York it set at a record closing low of 98.55 yen, off from the prior low of 98.60 Wednesday.
Early today in Tokyo, the dollar broke through 98.00 yen to 97.95.
But against the German mark, the dollar actually rallied slightly in New York on Thursday, to 1.587 marks from 1.584 on Wednesday.
Compounding the dollar’s problems against the yen 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.
In the stock market, meanwhile, traders said Thursday’s action was affected by end-of-quarter crosscurrents. On the New York Stock Exchange, declining issues topped advancers by nearly 7 to 5 as blue chip stocks dropped.
But the Nasdaq market of mostly smaller stocks rallied: Winners topped losers by 18 to 10, and the composite index added 1.95 points to 705.96.
Some traders said bargain hunters were moving into the battered small-stock arena on the last day of the quarter. The Nasdaq index, which dropped 4.3% in the first quarter, gave up another 5% in the second quarter. The Dow, in contrast, lost 3.1% in the first quarter but was off only marginally in the second.
George Pirrone, trader at Dreyfus Corp. said some owners of bigger stocks were ridding “themselves of stocks they don’t want in their portfolios at the end of the quarter” on Thursday.
Such “window dressing” often occurs at the end of quarters, as money managers restructure portfolios in time for quarter-end statements that will go to clients.
Gene Jay Seagle, a technical analyst at Tactics and Technics, said many investors had moved to the sidelines ahead of Monday’s Independence Day holiday and next week’s Fed meeting. “This market will be tested to a much truer degree next week,” he said.
Among Thursday’s highlights:
* Dow stocks off sharply included Boeing, down 1 to 46 1/4; GE, off 1 to 46 5/8; IBM, down 1 5/8 to 58 3/4; Caterpillar, off 2 1/8 to 100; and Disney, down 1 to 41 5/8.
* Many HMO stocks fell after the House Ways and Means Committee OKd a health reform bill that could hurt HMOs. United Healthcare sank 2 3/4 to 45 1/8, PacifiCare A fell 3 1/8 to 50 and Humana lost 1 3/8 to 16 1/8.
* On the plus side, phone stocks rallied on more merger news. Nynex added 1 to 37 7/8, GTE gained 3/4 to 31 and Southwestern Bell added 3/8 to 43 1/2.
Overseas, London’s FTSE-100 index dropped 27.1 points to 2,919.2 while the Frankfurt’s DAX index sank 20.96 points to 2,025.34.
In Tokyo, the Nikkei index rallied, rising 162.93 points to 20,643.93.
Mexico City’s Bolsa index retreated 8.35 points to 2,262.58.
Market Roundup, D5
