FINANCIAL MARKETS : Stocks Recover From Selloff; Bonds Steady : Wall Street: Dollar’s fall hits overseas stock markets hard.
Stocks ended slightly lower Friday after climbing back from a deep selloff fueled by renewed weakness in the dollar and a jump in bond interest rates.
The Dow Jones industrial average ended down 3.25 points at 4,764.15, snapping back from an early loss of nearly 40 points. For the week, the index lost 33.42 points.
In the broader market, declining issues beat advances 1,491 to 728 on active volume of 370.8 million shares on the New York Stock Exchange.
Analysts said the dollar’s fall touched off waves of selling in overseas stock markets, which splashed over into New York. Tokyo stocks fell nearly 2%, with the Nikkei Average losing 321 points to 17,714. In London the FTSE-100 dropped 43.1 points to 3,514.8. Stocks in Germany and Switzerland also tumbled.
U.S. investors were worried that the dollar’s robust rally from its lows in April may be running out of steam, which might deter foreign traders from buying American stocks.
A late recovery in the dollar and steadier bond prices helped stocks rally.
“With a weakness in currency, a spike in commodities prices and yesterday’s [unexpectedly stronger] Philly Fed data, the odds are against a Fed cut next Tuesday,” said Philip Orlando, a senior vice president at First Capital Advisers.
On Thursday, the Federal Reserve Bank said its index of business conditions in the Philadelphia region soared to 26.4 from 4.4 in August, a sign the local economy was stronger than expected. Economists had forecast a reading of only 3.4.
Analysts said Federal Reserve Chairman Alan Greenspan’s Congressional testimony Friday provided no clear hint as to the direction of interest rates next week.
Greenspan told the Senate Banking Committee that the economic outlook has turned up recently, and that he saw little reason to expect much in inflation trends in the near term.
In the bond market, the key 30-year Treasury yield rose to 6.58% from 6.56% Thursday.
“Economic news suggests a robust economy for six to nine months,” said John Shaughnessy, research director at Advest Research. “That suggests that the Fed is not going to lower short-term rates. It’s obviously giving the bond market problems, and working to hurt the stock market.”
Also unnerving the bond market was a threat by House Speaker Newt Gingrich to allow the government to default on its debt payments.
“The mere fact you have such a powerful political figure playing politics . . . has caused anxieties, especially from offshore investors,” said Kevin Flanagan, money market economist at Dean Witter Reynolds Inc.
Stocks were helped by a stabilization in commodities prices. Rising commodity prices Thursday raised worries about rekindling inflation and dampened stocks.
The big news Friday was Time Warner and Turner Broadcasting’s agreement to form the world’s largest media conglomerate. Time Warner rose 7/8 to 40 5/8 and Turner added 1/8 to 28 7/8.
Among market highlights:
* Compaq fell 1 1/4 to 46 7/8. Hambrecht & Quist cut its earnings estimates amid concern over delays of Compaq’s new LTE 5000 notebook.
* Harley Davidson fell 4 3/4 to 25 after it warned of lower sales for the third quarter.
* General Signal lost 4 1/2 to 30 5/8 after saying its earnings will disappoint Wall Street.
Drug stocks did well, with Merck, a Dow industrial component, gaining 1 to 57 1/2.
Technology stocks, which have been market leaders to the upside this year, continued a recent downward move. IBM fell 1/2 to 93 7/8 on the Big Board. Intel lost 41/64 to 60 1/2 in Nasdaq trading.
“Technology stocks seem to be in the midst of giving up some of their leadership to classic defensive issues,” said James Meyer, research director at Janney, Montgomery Scott in Philadelphia. “I can’t imagine that bodes well for the market, or for the economy.”
