FINANCIAL MARKETS : Interest Rate Worries Ebb; Dow Adds 19
Shorter-term interest rates tumbled for a second consecutive session Thursday, indicating that Wall Street increasingly doubts the Federal Reserve Board will raise interest rates next week.
Meanwhile, longer-term yields inched up, while stocks rallied strongly for a second day. The Dow industrial average gained 19.18 points to 3,765.47.
The interest rate outlook was helped by a report from the Federal Reserve Bank of Philadelphia, which indicated that that region’s manufacturing growth has declined in December. The survey also showed a decline in prices paid by manufacturers, and smaller new orders and shipments.
Regional Fed surveys can foretell shifts in the national outlook.
The Philadelphia Fed report provides new evidence that the economy is growing without a meaningful rise in inflation. Earlier in the week, the government said consumer and wholesale inflation remained restrained in November.
Combined, the economic reports suggest the Fed can delay additional hikes in short-term interest rates. Central bank policy-makers, who are to meet Tuesday, have raised rates six times this year in an effort to slow the economy.
With pressure seemingly off for another rate increase, shorter-term bond yields sank Thursday. The yield on three-month Treasury bills slid to 5.70% from 5.84% on Wednesday and 5.94% on Tuesday.
The three-year T-note yield dropped to 7.65% from 7.70% on Wednesday, 7.80% on Tuesday.
The decline in yields helped Orange County, whose bankrupt investment fund Thursday began liquidating bonds maturing in 2 1/2 to four years.
Longer-term yields were slightly higher, which traders said indicated some investors are selling longer-term issues to buy shorter-term bonds. The yield on the 30-year T-bond edged up to 7.87% from 7.86% on Wednesday.
Meanwhile, the stock market rallied powerfully, with the Dow reaching pre-Thanksgiving levels. In the broad market, rising stocks outnumbered losers by 15 to 8 on the New York Stock Exchange in continued heavy trading.
Some analysts said computerized program buying was skewing the market. Some of those trades are technical in nature, tied to today’s quarterly expiration of key stock index futures and options.
But Thomas Schlesinger, a strategist at brokerage A.G. Edwards, said “the overriding factor (in stocks’ gains) has to be people thinking year-end rally. Part two would be the options expirations.”
Among Thursday’s highlights:
* Industrial stocks, many of which have been hammered in recent weeks on worries about rising interest rates’ effects on the economy, rebounded sharply. International Paper leaped 2 1/4 to 74 3/4, Alcoa gained 1 3/4 to 81 5/8, United Technologies added 1 1/2 to 61 and Bethlehem Steel rose 1 to 19.
* Tech stocks also rallied, helped by a strong earnings report from computer networker 3Com, which rocketed 6 1/4 to 48 3/8. Other winners included Cisco Systems, up 1 11/16 to 33 7/16; Cabletron Systems, up 1 to 47 1/2; DSC Communications, up 2 1/2 to 32 5/8, and FileNet, up 1 1/2 to 25. But Sprint fell 3 7/8 to 26 7/8 after warning about weak near-term earnings.
* Gannett surged 3 7/8 to 51 after investor Warren Buffett said he owns 4.9% of the stock.
Overseas, London’s FTSE-100 index eased 7.2 points to 2,973.4, while Frankfurt’s DAX index shot up 27.82 points to 2,052.59. Tokyo’s Nikkei-225 index rose 189.63 points to 19,121.12.
Mexico City’s Bolsa index slumped 22.89 points to 2,378.66 as the Mexican peso fell to a record low of 3.4625 against the dollar, hurt by concerns about the ongoing rebellion in Chiapas state.
Market Roundup, D6
DAILY DIARY
Dow Jones Industrials High: 3,794.07 Close: 3,765.47 Low: 3,729.13
New York Volume: 337.08 million shares
Interest Rates 30-year T-Bond: 7.87% 1-year T-Bill: 7.07%
