FINANCIAL MARKETS : Economic Data Leaves Stocks, Bonds Mixed
Government reports indicating economic expansion with a mild degree of inflation left Treasury bond yields sharply mixed and blue-chip stocks slightly lower Tuesday.
The reports cheered bond investors and boosted confidence among some that the Federal Reserve Board will again raise interest rates to cool down the economy. Buyers anticipating high rates during a time of low inflation flocked to long-term bonds.
Short-term securities suffered because the prospect of higher rates makes them less attractive as investments. The yield curve between the two bond classes contracted to its narrowest point in several years.
The benchmark 30-year bond yield fell to 7.85% from Monday’s 7.92%. Its price, which rises when rates fall, was up 24/32 point, or $7.50 per $1,000 in face value.
Despite the drop in long-term rates, the Dow Jones industrial average closed off 3.03 points at 3,715.34. In the broader market, however, advancing issues outnumbered declining ones about 11 to 9 in active trading on the New York Stock Exchange. Volume was 309.37 million shares.
Stock investors like to see rates fall because that reduces the cost of borrowing for companies and makes share prices more attractive relative to interest-bearing investments.
There were signs that the economy retains plenty of steam. The Commerce Department reported a stronger-than-expected 1.2% rise in retail sales, and the Labor Department said wholesale prices rose 0.5% in November.
“The implication of strong retail sales is that we’ll see continued strong economic growth in the fourth quarter,” said Rusty Vanneman, senior money market analyst at Technical Data. “That means the Fed will probably tighten rates soon.”
The producer price index carried little sign of inflation, and that further bolstered investor demand for long-term bonds. Higher rates tend to make short-term bonds less valuable.
“Bond traders think they have a win-win situation with lower inflation and a Fed tightening on the way,” said Sung Won Sohn, chief economist at Norwest Corp.
Among Thursday’s highlights:
* Intel ended 1/8 higher at 60 1/2, after tumbling 2 3/8 on Monday on news that International Business Machines Corp. was halting shipments of personal computers that use Intel’s flawed Pentium chip.
* US Bioscience fell 4 3/8 to 2 after a Food and Drug Administration advisory committee recommended late Monday against approval of Ethyol, a drug developed to treat the side effects of chemotherapy.
In overseas trading, uncertainty over the revolt in Chiapas sent Mexican stocks tumbling. In Mexico City, the Bolsa sank to 2,407.99, off 59.8 points and its lowest closing level in four months.
Tokyo’s 225-share Nikkei average closed down 99.62 points at 18,875.48. In Frankfurt, the DAX 30-share average ended 13.57 points lower at 2,011.25. London’s Financial Times 100-share average ended the day at 2,946.4 points, up 3.0.
Market Roundup, D6
