FINANCIAL MARKETS : O.C. Debacle, Inflation Fears Send Stocks, Dollar Lower
Orange County’s bankruptcy filing and inflation warnings from Federal Reserve Chairman Alan Greenspan rattled financial markets Wednesday, sending stocks and the dollar lower and long-term bond yields up.
As on Tuesday, some investors sold stocks and bonds and put their cash into short-term Treasury bills, considered a safe haven in times of trouble.
On Wall Street, the Dow industrial average lost just 10.43 points to 3,735.52, but that masked a heavy selloff in the broad market.
Losers outnumbered winners 15 to 7 on the New York Stock Exchange and 18 to 10 on the Nasdaq market.
The Nasdaq composite index of mostly smaller stocks tumbled 6.96 points, or almost 1%, to 734.27.
Analysts said Orange County’s surprise bankruptcy filing late Tuesday cast a negative pall over the stock market, adding another element of concern to an already jittery market.
The dollar also was weakened, experts said, because currency traders fear the Orange County debacle could be a harbinger of troubles faced by much larger investors that made similar, highly leveraged bets on bonds.
Heavy new selling of bonds and stocks by investors forced to liquidate could depress the dollar anew, traders said.
In New York, the dollar closed at 99.94 Japanese yen and 1.568 German marks, down from 100.08 yen and 1.572 marks Tuesday.
Investors also weren’t happy with Greenspan’s testimony before the Joint Economic Committee of Congress. He said that economic growth has been stronger than expected and that consumer inflation could start to rise--speculation that many analysts took to mean the Fed isn’t through raising short-term interest rates to slow the economy.
In the bond market, municipal bonds were down sharply in price nationwide, reflecting investors’ concerns about the health of states, counties and other municipalities in the wake of Orange County’s shocking bankruptcy filing.
The Treasury bond market was mixed. Yields on longer-term issues rose slightly, reflecting Greenspan’s inflation warnings, analysts said.
But yields on short-term T-bills dove for a second day, as investors sought a safe place to stash cash. The yield on six-month T-bills slid to 6.38% from 6.52% on Tuesday.
Among other market highlights:
* Shares of major securities firms that are creditors to Orange County fell sharply on the bankruptcy news. Merrill Lynch dropped 1 1/4 to 35 and Morgan Stanley slumped 1 5/8 to 56 7/8.
Also, mutual fund giant Franklin Resources lost 7/8 to 35 3/4 after an Oppenheimer & Co. analyst downgraded the stock, citing Franklin’s California municipal bond funds’ potential exposure to Orange County and related bonds.
* Many closed-end mutual funds that own California bonds dropped. MuniYield California Fund sank 1/2 to 12, Nuveen California Investment Quality Muni Fund dropped 1/2 to 14 and Nuveen California Muni Value Fund was off 1/2 to 10.
* Elsewere, Continental Corp. surged 4 3/4 to 18 3/4 following Monday’s news that it is to be acquired by CNA Financial for $1.1 billion cash, or $20 a share.
Overseas, Tokyo’s 225-share Nikkei average fell 166.24 points to 19,174.23. In Frankfurt, the DAX average closed at 2,055.60, up 8.72 points, and London’s FTSE 100 eased 3.6 points to 3,012.5.
Meanwhile, crude oil prices fell to eight-month lows before recovering to end modestly lower. On the Merc, January crude oil closed 7 cents lower at $16.87 a barrel.
