FINANCIAL MARKETS : Stocks Pressed by Wary Mood; Dow Falls 14.47
Stocks fell in sluggish trading Monday as investors worried that new government data on inflation would lead to higher interest rates and lower corporate profits.
The Dow Jones industrial average closed 14.47 points lower at 3,860.34. In the broader market, declining issues outnumbered advancing ones about 13 to 7 on the New York Stock Exchange.
Many investors held back from making any significant commitment, anticipating today’s release of data on August consumer prices. Traders were looking for confirmation that the inflation rate may be picking up, analysts said.
“Everyone is waiting to see what the numbers will be,” said Peter Canelo, chief investment strategist at NatWest Securities Corp.
On Friday, the report of higher-than-expected prices at the wholesale level in August pushed bond yields sharply higher and helped to depress stock prices.
On Monday, Treasury bond yields continued to edge upward, with the 30-year bond yield closing at 7.71%, up from 7.70%. The bond’s price, which moves in the opposite direction, plunged 1 5/8 points Friday, off another 1/8 point, or $1.25 per $1,000 in face value.
The bond market selloff in the last two trading sessions has intensified speculation among traders that the Treasury market is about to break out of a five-month trend that has confined prices and yields within a narrow range.
Investors worry, Canelo said, that the Federal Reserve will feel compelled to nudge interest rates upward for a sixth time this year to cool economic growth and hold back inflation.
Bond investors worry about rising prices eroding the value of fixed-income securities such as bonds. Stock investors don’t like to see interest rates rise because it increases the cost of business borrowing and makes shares less attractive relative to interest-bearing investments.
Talk of further credit-tightening action has prompted concern about slowing the economy too much, said Don Hays, investment strategist at Wheat First Butcher Singer.
Stocks of companies most sensitive to the economic cycles--such as heavy machinery, papers and chemicals--tumbled as investors worried about the effects of higher interest rates.
Still, given the worries about inflation and Friday’s poor performance, stocks held up well, said Alfred Goldman, director of technical market analysis with A. G. Edwards & Sons.
“That shows this is just a normal pause after a good summer rally,” Goldman said.
Among the market highlights:
* Borden rose 2 to 13 5/8. Kohlberg Kravis Roberts & Co. and Borden agreed in principle on a KKR partnership’s acquisition of all Borden’s outstanding common stock in exchange for RJR Nabisco Holdings common stock owned by the partnership valued at $14 1/4 per share of Borden. RJR fell 3/8 to 6 5/8.
* GenCare Health Systems rallied 6 1/2 to 46 after United HealthCare Corp. said it planned to acquire GenCare for about $520 million in cash. United HealthCare fell 3/4 to 53.
* Nashua tumbled 3 5/8 to 25 1/2 after it said it expected a drop in third-quarter earnings.
* MGM Grand rose 2 1/8 to 30 3/8, boosted by an Oppenheimer upgrade to analyst “buy” from “market performer.”
* Amgen rose 1 1/2 to 53 1/8. Smith Barney said it upgraded its rating on the biotechnology company’s stock to “buy” from “outperform.”
* Stop & Shop gained 1 1/8 to 26 7/8 after posting a rise in second-quarter profit.
* Caterpillar fell 1 7/8 to 53 1/2; International Paper dropped 1 5/8 to 72 7/8.
* Technology stocks, mostly concentrated on the smaller-capitalization Nasdaq index, were also hurt by worries about the economy. Intel dropped 1 1/4 to 64 1/2; Cirrus Logic fell 1 1/4 to 30 in active trading.
Big Board volume retreated to 244.68 million shares from 294.32 million shares traded in the previous session.
Stocks ended mixed abroad. Frankfurt’s 30-share DAX average closed 30.54 points off at 2,154.61. Tokyo’s 225-share Nikkei average closed 19.40 points higher at 19,917.28. In London, the FTSE-100 average closed 10.5 points lower at 3,128.8. Mexico City’s Bolsa index fell 46.56 points to 2,708.79.
Among other major market indicators, the Standard & Poor’s index of 500 stocks fell 1.97 points to 466.21; the NYSE’s composite index fell 1.06 points to 257.32. The Nasdaq composite index, meanwhile, dropped 3.72 points to 760.01. On the American Stock Exchange, the market value index rose 0.52 point to 455.06.
In the currency markets, the dollar fell to a two-month low against the British pound after England’s central bank raised a key interest rate for the first time in nearly five years. The dollar closed at 99.13 Japanese yen, down from 99.15 Friday, and rose to 1.541 German marks from 1.538 marks.
England’s rake hike attracted investors to higher-yielding British bonds and raised demand for sterling. In New York, the pound fetched $1.5700, up from $1.5525 on Friday.
