FINANCIAL MARKETS : Dow Hits High as Investors See Stability
Blue-chip stocks climbed Monday to their third straight record high as the market grew more confident that the Federal Reserve Board will not boost interest rates when its policy-setting group meets today.
The Dow Jones industrial average spent most of the session drifting around its starting point. But a late round of buying pushed the blue-chip index past the previous high established Friday to finish at 4,157.34, up 18.67 points. It was the third record in a row for the Dow.
Analysts said the latest upturn in stocks confirmed Wall Street’s confidence that the central bank’s Federal Open Market Committee would not raise interest rates after tightening monetary policy seven times since February, 1994, in a bid to slow the economy’s growth and dampen inflation.
A larger-than-expected drop in existing home sales in February bolstered arguments for Fed inaction and sparked a drop in bond interest rates that, in turn, boosted stocks.
The yield on the Treasury’s benchmark 30-year bond closed at 7.31%--the lowest since 7.30% on June 14, 1994. The closing yield on Friday was 7.36%. Its price, which rises when yields fall, rose another 17/32 of a point, or $5.31 per $1,000 in face value.
Sales of existing homes nationwide fell 5% in February from the previous month’s level, the National Assn. of Realtors said, as higher interest rates and fears of a slowing economy hit the housing market.
The group said sales fell to a seasonally adjusted annual rate of 3.43 million units from an upwardly revised 3.61 million units in January.
Investors were betting that a recent stream of data showing a slowing economy will keep the Fed sidelined. Some analysts, however, had expected stocks to move lower Monday on profit-taking after Friday’s 51-point jump in the Dow index.
“The market seems to be taking the move up here to new highs in stride,” said Richard Meyer, manager of institutional trading at Ladenberg, Thalmann.
He linked much of the market’s gain to buying by portfolio managers at the end of the first quarter on March 31.
Meanwhile, Standard & Poor’s composite index of 500 stocks and the Nasdaq index also set new highs. Standard & Poor’s 500 stock index advanced 2.23 points to 503.20 and the Nasdaq composite jumped 3.97 points to 822.63.
The New York Stock Exchange composite index rose 1.22 points to 271.72, while the American Stock Exchange market value index rose 0.29 point to 461.19.
Gainers outnumbered losers by about 5 to 3 on the Big Board, where the trading pace eased from Friday. Big Board volume was 296.30 million shares, down from Friday’s 369.54 million.
Elsewhere, the dollar strengthened against the Japanese yen Monday after Japan’s finance minister indicated that he might reduce interest rates in an effort to halt the yen’s rise.
Meanwhile, the dollar tumbled against the German mark as speculation diminished that the German central bank would consider lowering interest rates during its policy-making meeting on Thursday.
“Traders are watching closely to see if interest rates are going to move,” said Paul Farrell, head currency trader at Chase Manhattan Bank in New York. “Much of the trading is based on speculation of what’s to come.”
In New York, the dollar was quoted at 89.45 Japanese yen, up from 88.98 Friday. The dollar also closed at 1.4063 marks, down from 1.4176.
Among Monday’s market highlights:
* Eli Lilly & Co. gained 3 1/8 to 76 3/4 after raising its forecast of first-quarter earnings.
* WellPoint Health Networks said it was talking to Health Systems International about a possible merger. WellPoint rose 2 3/4 to 33 3/4 and Health Systems gained 1 3/8 to 32 3/8.
News of the WellPoint bid triggered a rally in HMO stocks. Oxford Health Plans bounded 12 5/8 to 109 1/2 and Heathsource gained 3 1/4 to 45. Both stocks got an added boost in the form of initial “buy” ratings from Salomon Bros.
* Diagnostek rose 1 3/4 to 20 1/4. The company is being bought by Value Health in a stock swap valued at about $480 million. Value Health rose 3 1/2 to 37 3/4.
* Chrysler fell 7/8 to 38 5/8 after the auto maker announced it will replace the rear-door latches on all 1984-94 minivans, ending an 18-month government investigation.
* Microsoft retreated 7/8 to 73. Reports circulating of serious glitches in the introduction of the company’s delayed Windows 95 operating system drew negative attention to the stock.
* Transportation stocks got a lift from airline issues, which took off in response to a positive article about the industry’s profitability in the Wall Street Journal. AMR rose 2 3/4 to 64 7/8, Delta rose 3 3/8 to 61 5/8, UAL jumped 7 1/8 to 102 7/8 and USAir rose 1 1/4 to 6 3/8.
* Callaway Golf fell 1 1/2 to 14 amid reports of rising inventory and increasing competition from other golf club manufacturers.
* Telefonos de Mexico topped the Big Board’s list of active issues, rising 1 5/8 to 29 3/8.
Overseas, Tokyo’s 225-share Nikkei average closed up 346.48 points at 16,096.25. Frankfurt’s 30-share DAX average rose 21.48 points to 1,946.90, while London’s Financial Times 1010-share average was down 3.6 points at 3,149.8. Mexico’s Bolsa index closed up 99.42 points at 1.822.45.
