U.S. stocks fell for a fourth day, pulled down by technology issues, as concern grew among investors that the group has risen too far, too fast.
Yields dropped as the fixed-income market embraced a powerful rally Wednesday in the dollar against foreign currencies, which was inspired by a series of financial deregulation measures taken by Japan.
The dollar surged to a four-month high against the Japanese yen, up more than 3%. It began the day at around 88 yen, then rose as high as 91.27.
The yen’s decline boosted the overseas allure of dollar-denominated instruments, notably U.S. Treasury securities. The bellwether 30-year treasury bond’s yield fell to 6.85% from 6.90%.
In the U.S. stock market, five rounds of computer-guided “sell” orders spurred the market’s decline.
“The market was up 50 points, but it couldn’t hold on because it lost leadership in the technology group,” said Joseph DeMarco, managing director of equity trading at HSBC Asset Management Americas Inc. The tech group, up about 40% for the year, has fallen in the last three days “partly because they’re up so much and partly because expectations have gotten too high.”
“There were two panics: a buying panic in the morning and a selling panic in the afternoon,” said Marty Kearney, a trader at PTI Securities.
The early announcement by Japan that it will encourage investment overseas to strengthen the dollar sparked a stock rally early in the day. The advance faltered amid doubts that technology stocks can hold on to the gains they have made this year.
The Dow Jones industrial average reached an early peak of 4754.60, up 54.23 points, then faded, closing down 10.22 at 4690.15. Computer-guided selling accounted for a decline of 33 points on the average.
Leading the retreat were International Business Machines, down 2 3/8 to 107 1/4, and General Electric Co., which fell 1 1/4 to 57 3/8. Disney dropped 1 1/4 to 60 1/4 after gaining 4 1/8 in the two previous days on the strength of its offer to acquire Capital Cities/ABC Inc.
Among broader indexes, the Standard & Poor’s 500 index, which jumped as much as 5.94 points to 565.58 earlier, fell back to 558.8, down 0.84. Semiconductor, electrical equipment and computer companies fell, offsetting gains by telephone company, household product and insurance company shares.
The Nasdaq composite index made the biggest turnaround, falling 7.36 points to 983.75.
Technology shares rose along with rest of the market early in the day, then fell after CNBC correspondent Dan Dorfman said tech stocks would probably drop between 20% and 30% in the next three months, citing a Murphy, Marseilles, Smith & Nammack analyst.
For instance, Intel Corp. shares rose early by as much as 1 3/4, then ended the day down 1 3/4 at 61 1/2. Cisco Systems stock also slipped 1 1/2 to 53 1/4.
Shares of Digital Equipment Corp. rose, though, after Microsoft Corp. and Digital Equipment Corp. announced a partnership to develop and market software and computers based on Microsoft’s Windows NT operating system. Digital surged 2 7/8 to 43 1/4, after posting a two-point gain Tuesday.
The pullback did not dampen a rally in newly issued shares of Pure Software Inc., which more than doubled during the day. The Sunnyvale, Calif., company offered 2.75 million shares priced at $17 a share. The stock finished at 29 3/4.
Stocks initially got a boost from the news from Japan and a Commerce Department report that showed its index of leading economic indicators rose no more than expected last month, suggesting an economy growing slowly enough to permit the Federal Reserve Board to cut interest rates again. But then “people realized it’s a plus, but it’s not going to make or break this market,” said Thomas Mudge, equity researcher at Bailard, Biehl & Kaiser in San Mateo.
Among market highlights:
* Hopes that a telecommunications bill is close to being passed in the House of Representatives helped to temper losses. The bill would open up the communications market, allowing local and long-distance telephone and cable companies to compete freely.
SBC Communications Inc. stock jumped 1 5/8 to 49 and shares of Bell Atlantic Corp. were up 1 7/8 to 58 1/2. Among long-distance providers, AT&T; Corp. gained 1/4 to 52 5/8, while MCI Communications Corp. added 5/8 to reach 24.
* Also gaining were insurance companies such as American International Group and Loews Corp. They took off after Cigna Corp. posted a 58% increase in second-quarter earnings. Cigna shares soared 8 1/4 to 89 1/4, while Aetna Life & Casualty Co. posted a 1 5/8 gain to 63 1/4.
* Transportation issues lost ground after Salomon Bros. cautioned that airline issues may have reached their seasonal peak.
USAir Group fell 1/4 to 8 3/4, AMR Corp. tumbled 3 to 71 3/4, Delta Airlines slid 4 1/2 to 74 3/8, Southwest Airlines dropped 7/8 to 27 7/8, and UAL Corp. fell 4 3/8 to 144 1/8.
The drop in airline issues sent the Dow Jones transportation index skidding 28.18 points, or 1.5%, to 1,855.58.
Japanese investors, more used to the yen rising than falling against the dollar, bought stock aggressively as the greenback reversed the trend in Tokyo. The Nikkei index gained 2.21%. However, dealers said foreigners remained cautious and it was unclear if the rally would continue.
European market indexes were higher on speculation that Japanese investment abroad would rise. London’s FTSE 100 was up 50 points at 3,499.9. The German DAX index tacked on 21.50 points to close at 2,241.52.
Beneficial rains in the Corn Belt and the reluctance of foreign wheat customers to chase soaring U.S. prices sparked a massive selloff in grain markets as speculators took profits, analysts said.
Wheat futures in Chicago, Kansas City and Minneapolis dropped their daily limits and rice, soybeans, cotton and orange juice markets fell sharply.
Wheat prices has hit 15-year highs for the U.S. harvest period last month.