FINANCIAL MARKETS : Dow Bounces Back on Hopes of Lower Rates
Stocks sprinted higher on Monday on renewed hopes for lower interest rates.
Treasury bond yields retreated for the first time in four sessions, influenced by maneuvering ahead of upcoming economic reports.
The Dow Jones industrial average of 30 stocks closed up 22.47 points at 4,446.46, more than recovering last week’s 20-point loss but still 38 points shy of its all-time high set last Tuesday.
Stocks headed higher at the open, with the blue-chip average rising more than 40 points at one point during the day, as investors responded positively to comments by Federal Reserve Chairman Alan Greenspan on Sunday that the probability of a mild U.S. recession had increased.
Greenspan’s comments gave new life to hopes that the Fed would cut interest rates this year, especially after two White House aides were quoted as viewing an easing favorably.
Stocks usually respond positively to lower interest rates because they make equities more attractive than bonds, and they lower corporate financing costs as well as spur consumer buying.
The market was also buoyed by IBM’s weekend announcement that it had won software maker Lotus Development in a swift and sweetened $3.5-billion, $64-a-share takeover offer.
Broad market indexes also closed higher. The Nasdaq composite index gained 3.60 points, hitting a new closing high of 887.98.
Meanwhile, advancing issues led decliners by about 4 to 3 on the NYSE. Big Board volume was light at 289.94 million shares, down from 327.61 million on Friday.
The run-up in stocks came despite an anemic bond market, where the 30-year Treasury bond yield hovered unchanged for most of the day before closing lower.
The yield on the key 30-year bond ended at 6.70, down two basis points from Friday’s 6.72%.
Its price, which moves in the opposite direction, increased 11/32 point, or $3.44 per $1,000 in face value.
The dollar, meanwhile, fell against the Japanese yen and most other major currencies, hurt by growing nervousness over the U.S.-Japan automotive trade feud and a drop in Japan’s stock market.
The dollar closed in New York at 84.04 yen, down from 84.53 on Friday. The greenback also finished at 1.402 German marks, down from 1.407.
Among the market highlights:
* IBM led the Dow average higher, advancing 1 1/8 to 90 1/4. Lotus remained unchanged at 62 7/8, slightly below IBM’s offering price.
* Microsoft slid 1 1/8 to 83 3/4 in Nasdaq trading, as some analysts concluded that the IBM-Lotus marriage would hurt the software giant.
* Disney rose 1 5/8 to 59 as investors bet that the film “Pocahontas” would boost the company’s bottom line, analysts said.
* Rubbermaid added to its losses, falling 7/8 to 26. The stock shed 3 3/4 Friday after the company said second-quarter earnings would fall short of estimates.
* National Medical Enterprises fell 1 5/8 to 15 1/8 after Cowen & Co. downgraded the shares to “buy” from “strong buy.”
* National Semiconductor fell 1 3/8 to 26 3/4 after reporting lower fourth-quarter earnings.
* Chiron rose 6 7/8 to 61 3/4 and Cephalon rose 7 7/8 to 18 3/8 after Cephalon said clinical studies showed its Myotrophin drug, which it is developing with Chiron, lessened the severity and slowed the progress of amyotrophic lateral sclerosis, or Lou Gehrig’s disease.
Overseas, Tokyo’s 225-share Nikkei shed 230.72 points, or 1.53%, to finish at 14,813.46, its lowest close since Aug. 19, 1992, when it ended at 14,650.74.
