FINANCIAL MARKETS : Dow Nudged Lower, Yields Higher After Fed Report
Stocks closed with modest losses while bond yields edged higher and the dollar rose Wednesday amid growing expectations that the Federal Reserve Board will raise interest rates again later this month.
After falling as much as 24 points early in the session, the Dow Jones industrial average managed to finish with a loss of only 1.68 points at 3,928.98. Most of the recovery in the blue-chip index was made in the last 30 minutes of trading.
In the broader market, declining issues led advancers by about 10 to 9 on the New York Stock Exchange. Big Board volume was moderately heavy at 345.21 million shares, up from Tuesday’s 331.57 million. Broad market indexes were narrowly mixed.
The market was shaken early in the session by Fed Vice Chairman Alan Blinder’s comments that the economy is showing scant signs of slowing. That rekindled fears that the central bank will raise interest rates when its policy-making Federal Open Market Committee meets at the end of the month.
Later the Fed released its “beige book” economic report, which says the U.S. economy “remained vibrant” and that wage and price pressures have increased.
Analysts said Blinder’s comments and the “beige book” report undermined investors’ recent confidence that the economy was cooling and that the Fed would either nudge up rates or not tighten them at all.
Stock investors dislike higher interest rates because they increase corporate financing costs and cut into profits.
Meanwhile, the increased prospects for higher domestic interest rates boosted the dollar against most currencies. Higher rates increase the dollar’s value because they make dollar-denominated assets more attractive.
In New York, the dollar was quoted at 1.535 German marks, up from 1.533 on Tuesday.
Uncertainty about what impact the massive earthquake in Japan will have on that country’s economy weakened the yen against the dollar. It closed in New York at 99.70 yen, up from 99.13.
In the Treasury bond market, the yield on the 30-year bond rose to 7.77% from 7.76% on Tuesday. Its price, which falls when yields rise, fell 3/32 point, or 94 cents per $1,000 in face value.
Among the market highlights:
* Intel gained 2 3/8 to 69 3/8 after its fourth-quarter profit, reported after the market’s close Tuesday, beat Wall Street’s expectations.
* Adaptec surged 5 1/8 to 29 5/8 after its results came in well above analysts’ expectations.
* Sun Microsystems shed 1 5/8 to 34 5/8 on a disappointing profit report.
* Digital Equipment closed down 3/4 at 36 3/4 after analysts attributed a large portion of its earnings improvement to currency fluctuations.
* Auto stocks fell after workers struck General Motors’ plant in Flint, Mich. GM fell 1 3/8 to 40, Chrysler fell 1 1/2 to 50 1/8 and Ford Motor fell 1/2 to 28 1/4.
* Santa Fe Pacific rose 3/8 to 18 1/4, while Burlington Northern gained 1/8 to 52 3/4 and Union Pacific fell 3/8 to 48 3/4 after Union Pacific boosted its hostile bid for Santa Fe by 6% in the hope of derailing Santa Fe’s planned merger with Burlington.
* Hewlett-Packard rose 1 1/4 to 106 3/8. The computer maker began worldwide commercial shipment of its Freedom series of high-performance graphics accelerators.
Overseas stocks were mostly lower. In Tokyo, the Nikkei average ended off 18.01 points at 19,223.31, while Frankfurt’s 30-share DAX average ended down 5.02 points at 2,078.85. London’s Financial Times 100-share average edged up 0.5 point at 3,054.9.
In commodity trading, crude oil futures prices climbed to a 10-week high following an industry report of declining U.S. stocks of crude and tighter supplies of gasoline than traders expected.
Light, sweet crude oil for February delivery leaped 41 cents on the New York Merc to $18.73 per 42-gallon barrel.