FINANCIAL MARKETS : Dollar Rises as Dow Levels Off, Bonds Stay Flat
Profit taking Tuesday broke three straight sessions of gains that had lifted the Dow Jones industrial average by nearly 80 points, but the average fell just 1.95 points to end at 3,796.22.
Earlier in the day, a rally took the index to 3,811.44, the first time it has broken 3,800 since June 16. Other major indexes closed slightly up or slightly down.
In the broader market, advancing issues led decliners 1,245 to 914 on a New York Stock Exchange volume of 295 million shares. Bonds were flat, but the dollar rose above 100 yen and stock exchanges around the world soared.
Investors were once again turning to economically sensitive, or cyclical, stocks.
International Paper made the biggest advance on the Dow, rising 1 1/8 to 75.
Analysts said news of an unexpected plunge in new home sales for June, to the lowest level in two years, did not have the effect it could have in alleviating fears of a fifth Federal Reserve Board interest rate increase this year. New home sales dropped 14.1% to a seasonally adjusted annual rate of 591,000 units--the lowest since 584,000 in June, 1992, according to the Commerce Department.
“It makes you wonder if this market is ready to rally,” said Alice Sadlo, first vice president at McDonald & Co.
Traders said forthcoming economic reports, including a key one Friday on July employment, could also figure in investors’ wariness.
Eugene Peroni, chief technical analyst at Janney Montgomery Scott, said there was some technical and psychological selling when the Dow passed 3,800.
A day before the semiannual Treasury bond auction was to be announced, the yield for the Treasury’s main 30-year bond edged up to 7.40% from 7.39% on Monday. Yields were unchanged or slightly lower on short- and intermediate-term maturities.
Roughly $40 billion in new 3-, 10- and 30-year securities will be auctioned, with proceeds to fund payments on the federal government’s outstanding debt and to replenish Treasury coffers.
Analysts said worries about the market’s ability to absorb the new supply persuaded some players to sell securities bought during the powerful rally Friday, when the long bond’s yield dropped 0.16% to 7.39%.
The dollar, which rose above 100 yen and remained there in late trading Tuesday, was in a rebound after its drop Monday, when dealers nervous over the failure of U.S.-Japan government contract talks sold the currency. “The market overreacted” Monday, said Peter Gloyne, a vice president at First National Bank of Chicago. Traders said Tuesday’s rebound reflected relief that investors need not focus on trade issues as negotiations continue.
The yen also declined against major European currencies.
In Tokyo, stocks ended sharply higher on dealers’ short covering and on small-lot buying by financial institutions amid a lack of serious sellers. The Nikkei average ended up 388.78 points at 20,660.13.
European markets had a strong day, with the Frankfurt DAX index up 1.51%, or 32.60 points, at 2,186.39. In London, the FTSE-100 ended up 60.1 points at 3,157.5, its highest close since mid-April. British fears of an imminent interest rate hike were written off as alarmist, and the market turned its attention to hopes of strong earnings figures. In Paris, shares ended sharply higher on foreign buying after breaking the 2,100 mark.
Among Tuesday’s highlights:
* Drug stocks got a shot in the arm from a surprise announcement from American Home Products that it is offering $95 a share, or about $8.5 billion, in cash for American Cyanamid. The offer represents a premium of more than 50% over Monday’s closing market price. American Cyanamid was up 3/4 to 63 3/4 when trading was halted for the news, which broke late in the day. It never reopened on the Big Board, but the stock later rocketed to 93 in after-hours trading.
Among other pharmaceutical issues: Pfizer rose 2 to 63 1/2, Upjohn rose 2 to 32 and Warner Lambert rose 4 3/8 to 68 1/2. American Home Products fell 3/4 to 56 3/4.
* Among individual stocks, Score Board dropped 2 5/8 to 6 1/8 after saying second-quarter earnings and revenue would be below expectations.
Aspect Telecommunications jumped 2 1/2 to 33, boosted by a “buy” rating from Oppenheimer.
International Paper made the biggest advance on the Dow Jones index, rising 1 1/8 to 75.
Goldman Sachs said it added Compania Telefonos de Chile to its “recommended” list. Shares rose 5 3/4 to 88 1/4.
High-technology stocks pushed ahead, with Microsoft up 7/8 at 54 1/4, Intel up 1/2 at 60 1/8, Sybase up 7/8 at 38 7/8 and Compuware up 1 at 41 3/4.
* Oil prices fell after climbing to 17-month highs Monday. The market remained edgy over an oil workers strike in Nigeria, a key supplier of high-quality, gasoline-rich crude oil to the United States.
September crude oil closed down 41 cents at $20.14 a barrel on the New York Mercantile Exchange, backtracking from Monday’s Nigerian-strike inspired surge to $20.98, the highest level since March, 1993.
* Gold prices fell. On New York’s Commodity Exchange, gold for current delivery dropped $4.80 to $378.40 per troy ounce. Republic National Bank quoted gold at $379.50, off $4, at 4 p.m.