FINANCIAL MARKETS : Blue Chips Dip; Yields Mixed on Fed Worries : Wall Street: Investors keep their optimism despite report of rising factory output.
Blue-chip stocks edged lower Tuesday as modest profit taking emerged after the Dow Jones industrial average had soared nearly 75 points in the previous two sessions.
Bonds closed mixed and the dollar rose as investors watched for signs of another interest rate hike by the Federal Reserve Board, which wants to keep inflation under control.
Although strong economic data renewed such fears, investors apparently remained cautiously optimistic. Of the major market indicators, only the Dow went to a negative finish, falling 1.68 points to 3,930.66.
In the broader market, advancing issues outnumbered declining ones about 11 to 8 on the New York Stock Exchange, while volume came to a heavy 331.57 million shares, up from Monday’s 315.58 million shares.
The Fed said output from the nation’s factories, mines and utilities advanced 1% last month, compared to a predicted increase of 0.6%. The Fed also said capacity utilization rose to 85.4%; private economists had forecast about 85%.
*
The new evidence of economic strength suggested that inflation remains a menace and rekindled fears that the Fed will raise short-term interest rates.
Treasury bond yields ended mostly higher on the unexpectedly strong economic news. But the Treasury’s main 30-year bond yield fell to 7.76%, while its price, which moves in the opposite direction, rose a quarter-point, or $2.50 per $1,000 in face value.
On Friday, the bond’s yield finished at 7.79%. The bond market was closed Monday for the Martin Luther King Jr. Day holiday.
Good economic news often worries bond investors because it can portend inflation, which erodes the value of fixed-income securities.
Prices of short-term Treasury securities fell between 1/8 point and 5/32 point, and intermediate maturities were off 5/32 point or up as much as 1/32 point, the Telerate Inc. financial information service reported.
Yields on three-month Treasury bills jumped to 5.76% as the discount rose 0.08 percentage point to 5.61%. Six-month yields rose to 6.42% as the discount rose 0.07 point to 6.14%. One-year yields rose to 6.95% as the discount rose 0.08 point to 6.53%.
Meanwhile, in the currency market, the dollar traded at 1.533 German marks in New York, up from 1.532 on Monday. The dollar also gained against the Japanese yen, rising to 99.13 yen from 98.52.
Rising credit market interest rates are generally bad news for stock investors. Higher rates make shares less attractive relative to interest-bearing investments.
*
At the same time, however, strong economic growth is good for corporate earnings, so good economic data can have a mixed impact on the stock market.
Mostly, investors took a time out after running up the stock indexes between 5.5% and 7.5% since early December, said James Solloway, director of research at Argus Research Corp.
The NYSE’s composite index rose 0.44 point to 256.25. The Standard & Poor’s 500-stock index rose 0.67 point to 470.05, while the Nasdaq composite index gained 3.08 points to 771.24. At the American Stock Exchange, the market value index rose 1.56 points to 439.09.
Among Tuesday’s highlights:
* Bank stocks gave up ground after several reported weak earnings. Chemical Bank slipped 1/2 to 38 3/8, Chase Manhattan dropped 1/4 to 34 3/4 and NationsBank fell 1 7/8 to 46 5/8.
* Chrysler dropped 1 1/4 to 51 5/8 despite posting a record fourth-quarter profit. Analysts cited investor concern over softening sales of subcompact cars.
* Intel lost 1 1/8 to 67. The company said after the close of trading that fourth-quarter earnings were 86 cents a share, compared to $1.35 a share in the same three months of 1993. Many investors apparently expected the news.
* Quixote tumbled 2 1/2 to 10 after saying its per-share earnings will be well below Wall Street’s expectations.
* American International Group slipped 1/2 to 104 3/4. It was among the few U.S. insurance companies that were seen by industry sources as facing losses from the earthquake in the Kobe area of Japan.
* Tokyo Marine & Fire Insurance fell 3 1/2 to 55.
* Airgas rose 1/2 to 24 1/2 after the company forecast record fiscal third-quarter earnings.
* Haemonetics fell 2 to 15 5/8 after it reported quarterly earnings below the estimates of many Wall Street analysts. Alex. Brown & Sons cut a rating on the stock.
* After announcing that it would write down $12.1 million in the fourth quarter, Dovatron plunged 5 1/4 to 19 3/4.
* Symantec gained 3 1/16 to 20 5/8 after Morgan Stanley raised a rating on the stock.
Stocks fell abroad. Tokyo’s Nikkei 225-share average ended down 89.85 points at 19,241.32.
In London, the Financial Times average closed down 22.3 points to 3,054.4, while Frankfurt’s DAX-30 index finished down 1.77 points at 2,083.87.
Mexico City’s Bolsa ended a four-day winning streak, dropping 33.52 points to 2,209.49.
Elsewhere, commodity futures prices rose broadly on revived inflation fears.
Stiffening demand for fuel, cattle and sugar helped underpin the gains. Prices of precious metals, copper, cotton, coffee and cocoa rose as investment-fund buying swept through the markets, leaving few commodities untouched.
The Commodity Research Bureau’s index of 21 commodities rose 2.62 points to 235.58.
