FINANCIAL MARKETS : A Surprising Slowdown for December Sales : Dow Surges 49 as Fears of Big Fed Rate Increase Lessen
Stocks surged and bond yields fell in a sharp rally Friday as a report of anemic December retail sales appeared to trim chances that the Federal Reserve will favor a big increase in interest rates.
The Dow Jones industrial average gained 49.46 points to finish at 3,908.46, its strongest closing level since Oct. 31. A late surge of 50 points activated the New York Stock Exchange’s limit on program trading.
The yield of the Treasury’s main 30-year bond dropped to 7.79% from 7.87% late Thursday. Yields on short-term Treasuries also fell significantly.
“The numbers caused some people to stop and re-evaluate their anticipation of the Fed’s actions,” said James Marshall, a government securities trader at Dain Bosworth Inc. in Chicago. Signs that Mexico’s economic crisis was easing also buoyed stocks, traders said.
Analysts said they now expect a Fed rate hike of at most 0.5 percentage points at the end of the month instead of previous expectations of a 0.75 percentage-point hike. The retail sales report “really got some people off the fence, and it got them buying,” said Jay Ferguson, analyst at Ferguson, Andrews & Associates. Other analysts said they now expect no rate hike from the Fed meeting. The Commerce Department said retail sales fell 0.1% in December, the first drop in eight months. Retail sales for November, which were first reported 1.2% higher, were revised to 0.2%.
The data indicates the economy slowed, reducing the prospect that the Fed will sharply increase short-term interest rates at the Jan. 31-Feb. 1 meeting of the Federal Open Market Committee, analysts said.
With the U.S. government working on a multibillion-dollar rescue plan for Mexico, investors’ jitters over the possible fallout from the financial crisis south of the border eased. “Whatever the Mexican and Orange County concerns were, they seem to have put them in the back of their portfolios and now they’re looking at doing things,” said William LeFevre, senior market analyst at Ehrenkrantz King Nussbaum.
Friday’s gain gave the Dow industrials a rise of 41.05 points for the week. In the broader market, advancing issues beat declines 1,664 to 647 on active trading of more than 336 million shares on the NYSE.
Among market highlights:
* Bank stocks, some of which had been hit by concern over their Latin American exposure, rallied. Citicorp gained 1 5/8 to 40 5/8, and J. P. Morgan & Co. added 2 3/4 to 59 7/8.
* Mexican and other Latin American shares also gained in U.S. trading. Goldman Sachs told investors it believes the worst is over for Mexico.
* Vitro rose 1 1/8 to 12 7/8, Grupo Tribasa moved up 3/4 to 12, and Telefonos de Mexico gained 1/4 to 36 1/2. Compania de Telefonos de Chile climbed 3 7/8 to 78, and Buenos Aires Embotelladora ended up 2 1/2 to 34.
* Quaker Oats jumped 4 3/8 to 36, boosted by a report on CNBC-TV that Coca-Cola Co. may make a hostile bid for Quaker.
* The dollar advanced against the German mark as the appointment of a new premier in Italy helped strengthen the lira and fueled hopes that the mark’s surge against weaker European currencies has peaked. The mark has risen sharply of late against weaker European counterparts because of a variety of political and financial woes in Italy, Spain, Sweden and other countries. The move to the mark dampened demand for dollars. But the U.S. currency gained--and the mark fell--after Italy’s president called on Treasury Minister Lamberto Dini, a former top executive at the Bank of Italy, to form a new government. Late in New York, the dollar was quoted at 1.5335 marks, up from 1.5285 late Thursday. In London, the dollar advanced to 1.5350 marks from 1.5270.
* Sugar prices plummeted Friday in their biggest one-day drop in six years, as reports of a surge in India’s sugar production and efforts by China’s government to stem price hikes burst the market’s speculative bubble. Sugar prices posted a 4 1/2-year high of 15.83 cents on Jan. 4, attracting massive interest from speculators. Prices had risen 40% in the past six months. March sugar fell 0.95 cent to 14.26 cents a pound at the Coffee, Sugar and Cocoa Exchange in New York.
