FINANCIAL MARKETS : Rate Worries Hamper Stocks; Dollar Sinks
Bond yields stayed at 2 1/2-year highs Tuesday after Monday’s surge, while the dollar slid again and stocks finished mixed.
The 30-year Treasury bond yield, which closed above 8% on Monday for the first time since May, 1992, remained at Monday’s 8.04% mark after trading in a narrow range.
Any rally attempt in the bond market was undercut by the weak dollar, which set a fresh post-World War II low against the Japanese yen and a new two-year low against the German mark.
In the stock market, the Dow industrial average eased 4.71 points to 3,850.59, after being down more than 20 points earlier in the day.
Some broader stock indexes closed marginally higher thanks to a rally in oil issues, but losers still outnumbered winners by 14 to 8 on the New York Stock Exchange in active trading.
“There’s just that fear of (interest) rates,” said Jack Regan, analyst at Josephthal, Lyon & Ross.
Bond yields had leaped Monday as traders focused on this Friday’s expected government report on third-quarter economic growth. The bond market fears that growth remains so strong that the Federal Reserve Board will have to raise short-term rates for a sixth time this year to slow business activity and restrain inflation.
Many Wall Streeters now worry that they have badly underestimated how high interest rates may rise in this economic cycle, even if inflation stays low.
“The fact that they’ve broken through (8% on the T-bond yield) and held through it Tuesday just worries people a little more,” said Marshall Acuff, portfolio strategist at Smith Barney in New York.
Also Tuesday, the Treasury sold $17.3 billion in new two-year notes at an average yield of 6.88%, the highest in more than three years and slightly above the 6.87% yield that many traders anticipated. Today the Treasury sells new five-year notes.
The dollar’s continuing woes weighed on bonds Tuesday. A sinking dollar makes foreign investors less likely to invest in U.S. securities.
The dollar fell to 96.35 Japanese yen early in New York trading, tumbling through the previous postwar low of 96.55 yen set Friday. The dollar closed at 96.70 yen, down from 97.13 on Monday.
Against the German mark, the dollar hit a new two-year low of 1.486 marks during trading, then closed at 1.494, unchanged from Monday.
On Wall Street, traders said the stock market held up reasonably well, considering the bond and dollar action. But fears are rising that any additional jump in interest rates could slam stocks.
Among Tuesday’s highlights:
* Profit takers hit many industrial issues that had surged recently on optimism about the economy.
Losers included Bethlehem Steel, off 1 1/8 to 18 1/8; International Paper, off 1 5/8 to 75 1/4; 3M, down 1 1/4 to 54 1/8; Georgia-Pacific, off 2 1/4 to 73, and USX-U.S. Steel, which fell 2 3/8 to 36 3/8 after reporting lower-than-expected earnings.
* Food stocks, on the other hand, were a bright spot. Wrigley jumped 2 3/8 to 43 7/8 after reporting strong earnings. Quaker Oats rose 2 1/8 to 75 on recurring takeover rumors, this time involving Coca-Cola, which gained 7/8 to 50 1/4.
* Oil stocks surged on news that Mobil plans further cost-cutting efforts. Mobil jumped 3 to 83 1/4, Exxon added 7/8 to 60 3/8, Arco leaped 2 1/8 to 104, Phillips rose 1 to 34 7/8 and Unocal was up 3/4 to 28 1/4.
* Some U.S.-traded Mexican stocks tumbled after Mexican phone monopoly Telmex reported lower-than-expected quarterly earnings, dragging the Mexican market lower.
In Mexico City, the Bolsa index slid 55.24 points, or 2.1%, to 2,578.38, though it recovered from a stunning midday loss of 126 points.
On the NYSE, Telmex lost 3 1/8 to 57 3/8, Grupo Tribasa dropped 1 5/8 to 33 7/8 and Coca-Cola Femsa gave up 7/8 to 32 3/4.
In other foreign markets, Frankfurt’s DAX index plummeted 50.75 points, or 2.5%, to 1,974.63 as German bond yields surged to six-week highs on inflation jitters.
In London, the FTSE 100 index sank 28.2 points to 3,000.9. Tokyo’s Nikkei index lost 120.22 points to 19,732.15.
