FINANCIAL MARKETS : Dow Leads Stock Rally; Yields Rise
U.S. blue chip stocks staged a strong rally late Monday, lifting the broad market as investors continued to pick over the rubble of last week’s selloff.
But the bond market reversed course again, sending yields higher as investors reacted to new signs of economic strength.
On Wall Street, the Dow Jones industrial average climbed 31.29 points to 3,739.56, recouping about a third of last week’s net 107-point decline.
The broad market’s performance was less impressive, however. Winners edged losers by just 12 to 11 on the New York Stock Exchange in moderate trading of 265 million shares.
Most major indexes rose only marginally: The Standard & Poor’s 500 index added 1.87 points to 454.16 and the Russell 2,000 index of smaller stocks gained 0.66 point to 242.69.
As on Friday, investors on Monday hunted for select blue chip bargains in the wake of the heavy stock selloff early last week. Certain industrial, technology and drug stocks led Monday’s rebound.
“There were some bargain hunters (but) with no great conviction,” contended Michael Metz, investment strategist at Oppenheimer & Co. “Investors are still frightened.”
“It’s a leaderless market,” agreed David Holt, director of technical research at Wedbush Morgan Securities in Los Angeles. “There is no compelling reason to go out and buy a bunch of stocks.”
Indeed, the major factor behind last week’s plunge--worries about the effects of higher interest rates on the economy and on investors’ psyche--was again a topic on Monday, as bond yields rose for the first time in a week.
The yield on the 30-year Treasury bond jumped to 7.98% from 7.94% on Friday, and shorter-term yields rose even more sharply.
Traders said the bond market reacted negatively to news that retailers reported strong weekend sales, suggesting brisk consumer spending this holiday season. Also, the National Assn. of Realtors reported that sales of previously owned homes inched up in October, despite higher mortgage rates.
Investors fear that if the economy fails to slow appreciably, the Federal Reserve Board will raise rates further, dealing another blow to bonds and stocks.
Meanwhile, fresh strength in the dollar offered support to U.S. markets on Monday. The dollar reached its highest level against the German mark in nearly three months, helped by renewed interest in high U.S. interest rates and by Norway’s apparent rejection of European Union membership.
Currency traders interpreted the Norwegian vote as a sign of underlying friction in Europe that could hurt its economy and the mark, the continent’s dominant currency.
“Every time we see less unity in Europe than expected, it’s going to help the dollar,” said Hubert Pedroli, manager of foreign exchange trading at the New York branch of Credit Suisse.
In New York late Monday the dollar fetched 1.5668 marks, up from 1.5585 Friday and the highest level since Sept. 1. But the dollar eased to 98.68 Japanese yen from 98.81 Friday.
Among U.S. market highlights:
* Industrial issues rebounding included Alcoa, up 7/8 to 81 1/4; PPG Industries, up 7/8 to 35 1/8; Georgia-Pacific, up 1 1/2 to 69 7/8; Deere, up 1 1/4 to 63 3/4; and GE, up 1 to 47 1/4.
* Many tech issues soared anew. Sybase leaped 2 1/8 to 47, Lotus jumped 1 3/8 to 40 1/2, Intel gained 1 3/8 to 65 1/4, Compaq surged 1 3/8 to 40, Autodesk was up 2 11/16 to 37 and America Online gained 4 1/8 to 40 7/8.
* Drug stocks were strong, as investors continued to respond to the likelihood that federal health care reform is dead. Merck rose 1/2 to 37 1/8, American Home Products jumped 1 3/8 to 64 1/4, Pfizer surged 1 5/8 to 75 1/8 and Schering-Plough gained 1 1/8 to 75.
* Retailers were mostly higher after reporting healthy weekend sales. Winners included Mercantile Stores, up 1 3/4 to 41 3/8; Dayton Hudson, up 1/2 to 78 3/4; Limited, up 7/8 to 20 1/8; and Ann Taylor, up 7/8 to 39 3/8. But J.C. Penney slumped 2 1/4 to 46 1/4 after saying ts store sales rose in the low single digits in percentage terms last week.
* On the downside, Automotive Industries Holdings tumbled 3 1/4 to 16 1/2. It was one of five automotive original equipment suppliers that Salomon Bros. downgraded to “hold” from “buy.” Sellers also pressured Ford, down 5/8 to 26 7/8, and Chrysler, down 5/8 to 48.
* Many banking stocks also weakened as bond yields turned up. First Interstate fell 1 1/4 to 71 1/2, BankAmerica eased 1/4 to 40 5/8 and Citicorp lost 1/2 to 41 1/2.
* Mexican stocks traded on the U.S. market soared as shares rebounded in Mexico City. President Carlos Salinas de Gortari is due to hand over the office to Ernesto Zedillo on Thursday. The Bolsa stock index leaped 77.66 points to 2,562.83 on optimism about a return to political stability under Zedillo.
In U.S. trading, Telmex surged 2 1/2 to 54, Empresas ICA gained 1 7/8 to 31 and Grupo Tribasa shot up 3 1/8 to 33 7/8.
Elsewhere in foreign trading, Tokyo’s 225-share Nikkei average closed up 144.43 points at 18,811.36.
In Europe, Frankfurt’s 30-share DAX average closed at 2,058.45, up 6.83 points. And in London, the FTSE-100 index added 13.6 points to 3,047.1.
Market Roundup, D8
