FINANCIAL MARKETS : Dollar Soars on Rate Hike; Dow Off 3.37
The dollar surged to a five-week high Tuesday, while bond yields and stock prices moved modestly lower after the Federal Reserve Board announced an unexpectedly steep hike in interest rates.
The news of the Fed’s decision to boost two key short-term rates by 0.75 percentage point initially sent long-term bond yields plummeting. Most investors and traders expected to see a 0.50-point increase and at first apparently decided that the more aggressive action would keep a tighter rein on inflation.
Yields subsequently seesawed in the confusion as participants worried that the big rate hike was a subtle signal from the Fed that inflation, which can erode the value of bonds, looms larger than had been projected.
By day’s end, the price of the Treasury’s 30-year bond had fallen to 8.03% from 8.07% on Monday. The long bond’s price, which rises when rates fall, increased 13/32 point, or $4.06 per $1,000 in face value.
Prices of short-term Treasury securities closed 1/8 point lower, while intermediate maturities ranged from 1/32 point higher to 3/32 point lower, the Telerate Inc. financial information service reported.
Meanwhile, the dollar surged in New York. It closed at 1.556 German marks, up from Monday’s 1.544 and the highest level against the mark since Sept. 8, when it closed at 1.5564. The greenback also rose against the Japanese currency, to 98.76 yen, up from 98.31 yen Monday and at its highest level in relation to the yen in more than four weeks.
The dollar has been pressured in recent months because of fear that the Fed had not raised rates soon enough to fend off inflation.
Currency traders said the Fed’s action Tuesday went a long way toward reassuring investors.
On Wall Street, it was also a day of wild swings. At one point the Dow Jones industrial average jumped 16 points. Later it fell 50 points, then regained 25. The blue-chip average closed 3.37 points lower at 3,826.36.
Broader indexes were mixed and the numbers of issues advancing and declining the New York Stock Exchange were nearly equal: 1,127 up, 1,103 down and 697 unchanged.
Big Board volume totaled a heavy 339.91 million shares, up from 260.61 million shares traded Monday.
Among major market indexes, the NYSE composite fell 0.32 point to 254.52. Standard & Poor’s 500-stock index dropped 1.01 points to 465.03. The Nasdaq composite index was up 0.88 point to 769.02. On the American Stock Exchange, the market value index fell 0.11 point to 448.61.
Among the market highlights:
* Computer networking company 3Com Corp. rose 1 1/2 to 42 3/8, buoyed by an upgrading from Donaldson, Lufkin & Jenrette. Dell Computer Corp. rose 2 1/4 to 47 on a buy recommendation by Morgan Stanley.
* Retailer Dayton Hudson Corp. dropped 3 3/8 to 80 5/8 after posting third quarter earnings that were below Wall Street forecasts.
* Kmart fell 5/8 to 15. The retailer on Monday reported disappointing earnings of 8 cents a share for the third quarter, compared to predictions of 20 cents and actual earnings last year of 20 cents.
Swiss chemicals and drugs group Ciba-Geigy confirmed it was in talks with Chiron Corp. about a possible deal that would include Ciba’s purchase of a significant minority stake in Chiron.
* Chiron ended off 7/8 to 73 3/8 after soaring Friday when rumors of a possible deal emerged.
* Whirlpool was up 1 1/4 to 53 after announcing it will close two plants and cut about 3,200 jobs in North America and Europe as part of a major restructuring.
* Procter & Gamble fell 1 1/8 to 62 3/8. The household products maker said it will cut prices for its Luvs diapers an average of 11% and Pampers by 2% to bring them more in line with lower priced brands.
* Chrysler gained 7/8 to 49 7/8 after reporting record truck sales for the year and Merrill Lynch upgraded its rating on the stock. The developments came a day after investor, Kirk Kerkorian, Chrysler’s largest shareholder, said he wants to boost his stake in the auto maker and urged the company to use some of its plentiful cash to boost share prices.
Stocks closed higher in overseas trading. Frankfurt’s 30-share DAX average ended up 21.46 points at 2,110.75. London’s Financial Times 100-share average gained 40.1 points to finish at 3,135.4. Tokyo’s 225-share Nikkei average ended at 19,391.68, up 130.23 points.
Mexico City’s Bolsa index ended 27.49 points lower at 2,459.15.
Market Roundup, D12
