FINANCIAL MARKETS : Blue Chips Edge Higher; Bond Yields Steady
Stock prices edged higher Wednesday, buoyed by drug and semiconductor issues, but bond yields held steady after the second leg of the Treasury’s quarterly refunding attracted moderate demand.
The smaller-company Nasdaq index, heavily weighted in computer, semiconductor and other technology stocks, soared 5.59 points, or 0.77%, to 728.20. Technology issues also rose on other indexes.
The Dow Jones industrial average gained 11 points to 3,766.76 on Big Board volume totaling 279.50 million shares, up from 259.03 million on Wednesday.
In the broader market, advancing issues outnumbered decliners by about 5 to 4 on the New York Stock Exchange.
Technology stocks have taken a beating recently and their prices are relatively low, said James Melcher, president of Balestra Capital in New York.
“The stocks that have been pushed down the most are coming back,” he said. “The market is doing better and people are looking for bargains.”
Strong second-quarter corporate earnings reports have helped technology issues in recent days, said John Jones, a technology analyst at Salomon Bros.
Of the 22 technology stocks he covers, 82% met or exceeded expectations for the quarter, he said.
In addition, the profit increases over the same period last year are significant, Jones said. Of the issues, 46% showed increases of 40% or more and 36% showed gains of between 10% and 40%.
Strength in technology shares helped overcome the uneasiness weighing on stocks in recent sessions that was prompted by Friday’s stronger-than-expected July employment report.
That, and concern about data on July retail sales and inflation due out on today and Friday, has prompted speculation that the Federal Reserve Board might nudge interest rates higher for a fifth time this year. Analysts believe such a move could follow Tuesday’s meeting of the central bank’s policy-making panel.
The apprehension had also dampened enthusiasm for the Treasury Department’s three-phase financing operation this week. The Treasury sold $17 billion of three-year notes Tuesday and $12 billion of 10-year notes Wednesday, and it will sell $11 billion of 30-year bonds today.
Wednesday’s auction of new 10-year Treasury notes was uneventful and met decent demand from investors, according to market analysts. The average yield on the notes was 7.33%, about as expected.
Still, bond yields retreated somewhat following the auction, pushing down credit market interest rates. Stock investors like to see rates fall because that cuts the cost of money to companies.
In the bond market, prices of short-term bonds led a broader advance Wednesday as the market absorbed the second wave of the new refinancing operation.
The main 30-year bond yield closed unchanged at 7.57%, while its price edged up 1/32 point, or 31 cents per $1,000 in face value.
But Treasury bills posted sharper improvements as buyers of the short-term securities emerged following the afternoon auction of about $12 billion in 10-year bonds.
Prices of short- and intermediate-term Treasury securities ranged from 3/32 point to 1/8 point higher, the Telerate Inc. financial information service reported.
Meanwhile, stocks abroad ended mostly lower. In Tokyo, the Nikkei 225-share average ended up 180.03 points at 20,770.25; Frankfurt’s DAX 30-share average closed at 2,160.37, down 3.83 points, and London’s Financial Times 100-share average fell 1.6 points to 3,167.
Mexico City’s Bolsa index fell 20.299 points to 2574.67.
Among other major market indicators, the Standard & Poor’s index of 500 stocks rose 2.37 points to 460.30, while the NYSE’s composite index jumped 1.24 to 254.20.
Among the market highlights:
* In the semiconductor group, Micron Technology rose 3 1/4 to a new high of 42 1/4, Motorola gained 1/2 to 54 and Texas Instruments jumped 3 3/4 to 84.
Elsewhere in technologies, Hewlett-Packard added 2 1/2 to 82 1/4, networking stock Cabletron Systems rose 2 1/4 to 101 7/8 and Lotus Development rose 4 5/8 to 40 1/4.
Dell Computer rose 1 3/4 to 32 3/4, a 52-week high, amid hopes for its new portable computer and expectations that the company will report strong second-quarter earnings later this month.
* In the drug group, Upjohn rose 1 3/4 to 35 1/2, Bristol-Myers Squibb gained 1 3/8 to 55 5/8 and Merck jumped 1 3/8 to 32 1/4.
* American Cyanamid, the object of American Home Products’ $95-a-share offer, ended unchanged at 93 5/8.
New York State Electric & Gas was a big loser, dropping 4 5/8 to 20 7/8. The company said it does not expect to earn its allowed return.
* Dillard Department Stores fell 4 7/8 to 26 5/8. The retailer announced disappointing second-quarter earnings of 30 cents a share, compared to 35 cents in the same three months last year.
* Lam Research rose 2 7/8 to 36 1/8. The company on Tuesday announced sharply higher earnings.
* Franklin Quest gained 1 5/8 to 36 after Merrill Lynch named the issue its Focus One stock of the week.
* Mallinckrodt Group fell 1 3/8 to 28 7/8. The company on Tuesday announced a fiscal fourth-quarter loss of 12 cents a share, compared to a loss of $2.63 in the same three months last year.
* Ericsson Telephone fell 1 3/8 to 53 3/4 after Merrill Lynch downgraded the stock.
Elsewhere, the dollar held steady as investors awaited the July inflation reports.
In New York, the dollar was quoted at 101.35 Japanese yen, up from 101.28 on Tuesday. The dollar closed at 1.584 German marks, up from 1.582.