FINANCIAL MARKETS : Dow Gains 29 on Renewed Fed Rate Cut Hopes
Blue-chip stocks rose strongly in abbreviated pre-holiday trading Monday as more investors appeared to bet on an interest-rate cut this week by the Federal Reserve Board.
The Dow Jones industrial average shot up 29.05 points to 4,585.15, just shy of the all-time high of 4,589.64 set on June 22.
The broad market, however, failed to advance as sharply, though winners still topped losers by 11 to 8 on the Big Board.
Composite trading volume totaled just 145 million shares as the NYSE and other major markets closed at 10 a.m. PDT--three hours earlier than normal--in advance of the July 4 holiday.
Traders said some investors moved into blue-chip stocks after fresh economic data seemed to boost prospects for a cut in short-term interest rates by the Fed. The central bank’s policy-making committee meets on Wednesday and Thursday.
In particular, a report from the National Assn. of Purchasing Management showed a key indicator of health in the manufacturing sector remained sluggish in June. The NAPM manufacturing index slipped to 45.7 in June from 46.1 in May, the second straight monthly decline after 20 months of growth.
Separately, the government said May construction spending fell 1.5%, far steeper than the 0.1% fall economists had been expecting.
Although a report of stronger-than-expected consumer spending in May suggested renewed strength in the economy, many experts dismissed it.
“The basic picture is that the economy has stalled out. It’s declining modestly or near zero,” said Laurence Meyer, who runs a St. Louis economic forecasting firm.
If the Fed believes the economy now is too close to falling into recession, it may decide to officially ease its benchmark short-term interest rate--now 6%--by a quarter- or a half-percentage point, economists say.
Indeed, the bond market has long been anticipating such a cut. Yields on Treasury securities maturing as far in the future as five years have fallen under 6% over the past month, an indication that traders see the Fed’s official short-term rate moving down.
But on Monday, bond traders seemed hesitant about the Fed’s intentions. Yields were flat or modestly higher, with the 30-year T-bond yield closing at 6.63%, up from 6.62% on Friday.
Rates also rose at the Treasury’s auction of short-term bills.
The bond market’s nervousness didn’t undermine stocks, however.
“There’s an extraordinary amount of positive sentiment and bullishness” among investors, said Timothy Straus, head trader at Hancock Institutional Equity Services in Boston. “The market is clearly anticipating that the economy is not going into recession and that the consumer is not going to disappear, whether the Fed eases [this week] or not.”
Among Monday’s highlights:
* Stocks leading the Dow index higher included Chevron, up 1 3/8 to 47 3/4; Eastman Kodak, up 1 3/4 to 62 3/8; IBM, up 1 5/8 to 97 5/8; and GM, up 1 to 47 7/8.
* Some smaller industrial issues also advanced, perhaps reflecting investors’ faith in the economy’s ability to rebound this year. Kennametal gained 1/2 to 35, Inland Steel added 3/4 to 31 1/4 and Acme Cleveland rose 7/8 to 24 1/2.
* Technology stocks were generally higher. Motorola surged 1 3/8 to 68 1/2, FileNet gained 7/8 to 41 1/4, 3Com added 3/4 to 67 3/4 and Microsoft rose 9/16 to 90 15/16.
* Drugs stocks added to first-half gains, with Merck up 1/2 to 49 5/8, Pfizer up 3/4 to 46 3/4 and Upjohn up 1/2 to 38 1/8.
But home-health-care equipment maker Sunrise Medical plunged 3 5/8 to 27 1/2 after brokerage Alex. Brown cut its rating on the stock to neutral from strong buy because of a weaker sales and earnings outlook.
Also, biotech firm Protein Design Labs plummeted 6 7/8 to 13 7/8 after the company and its partner, Hoffmann-La Roche, said a study showed its Zenapax drug was ineffective in preventing disease following bone marrow transplants.
* Republic New York gained 2 3/8 to 58 3/8. The stock was added to the S&P; 500 index.
Overseas, Tokyo shares resumed their downward march, with the Nikkei 225 average closing at its lowest level in nearly three years, off 31.99 points to 14,485.41.
However, the Nikkei was rescued from a morning plunge below its 1992 closing low of 14,309.41--the nadir of its five-year bear market--thanks in part to institutional buying.
In Frankfurt the DAX average ended up 8.33 points at 2,092.26, while London’s FTSE-100 index added 9.1 points to 3,323.7.
In Mexico the Bolsa index dipped 1.65 points to 2,186.58.
Market Roundup, D4
* SOFTENING ECONOMY
New reports put pressure on the Fed to ease rates. A1
