FINANCIAL MARKETS : Dow Tacks On 9.86, Led by the Cyclicals
Strength in so-called cyclical industrial stocks gave Wall Street a modest lift Monday, awaiting the Treasury’s big quarterly bond sale this week.
Meanwhile, the dollar rose sharply against the German mark but eased slightly against the Japanese yen after last week’s surge.
In the stock market, the Dow Jones industrial average added 9.86 points to 4,693.32 as winners topped losers by 12 to 10 on the New York Stock Exchange. Trading was typically slow for a summer Monday.
Analysts said stocks were supported by a calm bond market. Despite the Treasury’s plans to sell a record $42.5 billion in new bonds this week, yields eased.
The 30-year Treasury bond yield dipped to 6.88% from 6.90% on Friday.
Some bond traders said they are optimistic that Japanese investors will be major buyers at the Treasury auctions this week, thanks in part to the dollar’s recent strength against the yen. A rising dollar boosts the value of foreigners’ U.S. holdings.
Last week, the Japanese government announced steps aimed at encouraging Japanese institutional investors to buy more foreign securities as a way of further weakening the mighty yen.
“It’s a psychological plus for the Treasury market,” said Tom Carpenter, economist at ASB Capital Management in Washington.
The Treasury will sell new 3-year notes today, 10-year notes on Wednesday and 30-year bonds on Thursday.
However, the dollar on Monday couldn’t sustain last week’s rally against the yen. It closed at 91.39 yen in New York, down from 91.43 on Friday.
But the greenback gained against the German mark, closing at 1.409 marks, up from 1.397 on Friday.
Rumors have circulated since Friday that Germany’s Bundesbank might cut short-term interest rates this week. Traders predict the central bank on Wednesday will reduce the 14-day securities-repurchase agreement rate, also known as the repo rate, a barometer of short-term rate trends in Germany.
That could be followed by a cut in the central bank’s official discount rate Thursday, some economists say.
In theory, lower German rates would weaken the mark by reducing the attractiveness of mark-denominated bonds.
On Wall Street, analysts said the market’s strength Monday was concentrated in industrial stocks tied to the economy’s swings.
The clear message was that some investors believe the weak U.S. economy could be getting a second wind.
“Consumer-cyclical stocks, like autos, housing and retailers, are starting to come back,” said Hugh Johnson, chief investment strategist at First Albany Corp. “The market is sending us signs that the economy is not about to roll over and die.”
Among the market highlights:
* Cyclical issues on the rise included Alcoa, up 1 to 57 5/8; Goodyear, up 1 1/8 to 43 1/4; International Paper, up 1 1/8 to 86 3/8; Union Carbide, up 7/8 to 36 3/4; Alumax, up 1 5/8 to 35 1/8; Olin, up 2 1/2 to 61 1/8, and Superior Industries, up 1 1/8 to 34.
Also, Chrysler jumped 1 5/8 to 51 1/4 after brokerage Salomon Bros. upgraded the stock to “buy,” saying the company’s recent excess inventory of cars has disappeared.
* Among retailers, Ross Stores jumped 3/4 to 13 5/8, Dayton Hudson added 3/4 to 76 3/8 and Sears gained 1/2 to 32 5/8.
* GE rose 1 1/8 to 58 3/4 after its NBC-TV unit said it won TV rights to the summer and winter Olympics in 2000 and 2002, respectively.
* Some technology stocks rallied, including Texas Instruments, up 1 7/8 to 146 1/2; Ascend Communications, up 1 1/8 to 72 1/8, and Broderbund, up 2 3/4 to 72.
Also, GM Class E shares, representing Electronic Data Systems, soared 2 1/2 to 46 1/8 after GM announced plans to spin off the business.
* Biotechnology stocks, some of which have rocketed in recent weeks, saw more buying. Amgen added 3/4 to 84 3/8, Biogen gained 1 5/8 to 46, Genzyme surged 2 1/2 to 58 1/2 and Agouron Pharmaceuticals was up 1 3/4 to 28 1/2.
* Nike jumped 2 1/2 to a record 96 1/8 after two brokerage firms reiterated “buy” ratings on the stock.
* On the downside, Disney sank 1 1/8 to 56 7/8 in continued profit taking in the wake of its $19-billion deal to buy Capital Cities/ABC.
And Westinghouse, which is buying CBS, lost 3/8 to 13 3/4.
In foreign markets, key Latin American bourses surged again, helped by expectations of lower interest rates ahead.
Mexico’s Bolsa stock index rose 23.94 points to 2,565.40, Brazil’s Bovespa index leaped 1,935 points to 43,939 and Argentina’s Merval index gained 8.51 points to 496.26.
In Tokyo, the Nikkei-225 index shed 125.74 points to 16,615.46.
