FINANCIAL MARKETS : New Inflation Worries Send Stocks Lower
Stocks ended mostly lower in choppy trading Wednesday as investors worried anew about interest rates and inflation. Technology issues, however, rallied amid optimism about their corporate earnings.
At the same time, the dollar reversed a weeklong slide against the German mark and gained on the Japanese yen, drawing strength from a prediction of lower German interest rates and some renewed optimism over U.S.-Japan trade talks.
The Dow Jones industrial average fell 12.45 points to 3,886.25, while in the broader market, declining issues narrowly outnumbered advances on the New York Stock Exchange.
Big Board volume shot up to 292.05 million shares, up from 199.86 million in the previous session. Tuesday’s volume was hurt by Labor Day and the Rosh Hashanah holiday, which began Monday and ended at sundown Wednesday.
Despite the heavier volume, there was little direction to the market and little news to motivate investors, said Bill Allyn, managing director at Jefferies & Co.
Bonds continued to drift lethargically, with interest rates rising modestly amid renewed fears of inflation.
The Treasury’s bellwether 30-year bond finished at 7.56%, up from Tuesday’s 7.53%. Its price, which moves in the opposite direction, dipped 3/8 point, or $3.75 per $1,000 in face value. Traders noted that Wednesday’s volume was light, meaning price swings tended to be exaggerated.
Mostly higher gold stocks and the rising price of the precious metal has helped fuel inflation worries. Investors tend to buy gold as a hedge against cost-of-living increases. Gold for current delivery rose $2.30 an ounce to $390.20, its highest level since a $391.10 close in June.
Some investors resisted participating in the financial markets ahead of the government’s August inflation data scheduled for release Friday and Tuesday, said Ricky Harrington, senior vice president at Interstate/Johnson Lane.
“There is some concern those could be disappointing numbers,” Harrington said.
That could prompt renewed concern about another move by the Federal Reserve Board to nudge interest rates higher. The Fed has already tightened credit five times this year in an effort to slow economic growth and forestall inflation.
Stock investors don’t like to see interest rates rise, because that raises the cost of borrowing and makes share less attractive.
Despite the negative slant to the market, the Nasdaq composite index of mostly smaller companies, rose 4.80 points to 764.28, with technology issues leading the way. The Nasdaq index is heavily weighted in technology stocks.
The issues are still relatively inexpensive, despite their choppy, 3-week-old advance, said James Melcher, founder and president of Balestra Capital in New York.
The boost in the Dow average in late August, when the market’s best-known barometer moved up about 125 points over five trading days, helped investors feel they should be in the market, Melcher said.
“And if investors are looking for what is good in the United States, computer technology is one of those areas,” said David Wu, a technology analyst for S.G. Warburg.
Many technology companies, he said, garner more than 50% of their revenues from abroad. Improving economies in Japan and Europe promise improved profits and make the sector seem attractive.
Among the market highlights:
* Leading the Nasdaq rally were semiconductor stocks, led by Intel, up 1 1/8 to 66 3/8, and software makers Lotus Development, up 2 3/8 to 44 1/2, and Microsoft, up 7/8 to 56 7/8.
* Health care stocks rallied after the government announced rate increases for Medicare reimbursement that averaged about 5%. PacifiCare Health Systems jumped 2 7/8 to 68 5/8, and U.S. Healthcare rose 2 3/8 to 43 1/2.
* Circuit City Stores gained 1 7/8 to 26 after it said it expects to post second-quarter earnings above analysts’ expectations.
* Recreational vehicle maker Winnebago Industries skidded 2 1/2 to 8 7/8 after it said it expects its fourth-quarter operating profit to be below analysts’ forecasts.
* Dart Group soared 12 1/2 to 88 1/2. Ronald Haft said he exercised an option making him owner of 79% of the company’s voting stock.
* Hanson fell 1/8 to 19 5/8 in heavy dividend-related volume of more than 20 million.
Shares ended mostly lower abroad. Tokyo’s Nikkei-225 average closed slightly above the key 20,000 level, down 370.18 points at 20,023.80, a four-month low. In Frankfurt, the DAX-30 average lost 2.08 points to close at 2,163.82. In London, the FTSE’s 100-share average dipped 1.5 points to 3,203.9.
Mexican stocks closed sharply higher for the second straight day. The key Bolsa index closed up 34.85 points, or 1.29%, at 2,738.92.
Among other major market indicators, the Standard & Poor’s index of 500 stocks fell 0.90 point to 470.96, while the NYSE’s composite index fell 0.33 point to 259.78.
