FINANCIAL MARKETS : Dow Leaps 50 Points as the Fed Stands Pat : Markets: A new high is set at 4,922.75 points. But the decision to hold down interest rates disappoints bond investors.
Fueled by a late burst of computer-driven buying, the Dow Jones industrial average soared more than 50 points on Wednesday to set another record high. That came even as the Federal Reserve Board passed up an opportunity to cut interest rates for the second time this year.
The Dow industrials leaped 50.94 points to close at a new high of 4,922.75, beating the old record of 4,872.90 set Monday. The market was relatively flat for much of the day but surged in the last hour on a flurry of computer program buying that was linked, in part, to Friday’s double expiration of options and options on futures.
Consumer issues helped to lead the Dow higher, as investors bet that, even if the Fed declined to ease rates, it might do so after the budget disagreement is solved.
“A Dow 5,000 is merely a stone’s throw away. If President Clinton and Congress can get together, we can get there in an eye blink,” said Philip Orlando, chief investment officer of Value Line’s asset management division.
In the broader market, advancing issues led decliners 1,193 points to 1,034 on moderate volume of 376 million shares on the New York Stock Exchange.
Records also were set by the Standard & Poor’s 500-stock index, which rose 4.67 points to 593.96, and the NYSE composite index, which was up 2.01 points 316. The average share gained 23 cents. The Nasdaq composite index rose 1.23 points to 1,041.85.
The Fed’s decision to stand pat was widely anticipated by economists, who said the Fed was hesitant to adjust rates at a time when the outcome of the budget impasse between the White House and Congress created uncertainty over the economy’s future.
The Fed’s policy-making Federal Open Market Committee met behind closed doors for 4 1/2 hours before issuing a brief announcement that signaled it left rates unchanged.
Analysts said in advance of the committee meeting that the combination of a sound, if unspectacular, economy and uncertainty over the federal budget impasse practically assured the Fed would delay cutting interest rates.
The policy-makers received some mixed economic news today. Consumer prices rose 0.3% in October, a modest advance but the largest in five months, due in part to a surge in the cost of electricity.
The Fed itself reported that industrial production fell 0.3% last month, due in part to a strike at Boeing aircraft. The nation’s factories, mines and utilities were operating with more slack, easing inflationary pressures.
“The Fed is basically happy with the current performance of the economy,” said economist Kevin SigRist of Norwest Corp., a Minneapolis bank. “The sensitive nature of the budget-deficit reduction negotiations and the current non-inflationary pace of economic growth could keep the Fed from cutting interest rates until 1996.”
The Fed’s inaction discouraged some bond investors, driving the yield on the benchmark 30-year Treasury bond up to 6.29% from 6.28% late Tuesday.
Also weighing on fixed-income prices were a huge supply of fresh securities hitting the market this week and next week in emergency auctions by the Treasury Department. The Treasury is raising $137 billion to pay off principal and interest and to replenish government coffers.
In Wednesday’s sale, the Treasury sold $18.87 billion in one-year bills at an average discount rate of 5.15% and yield of 5.45%.
As expected, Treasury Secretary Robert E. Rubin took actions to avoid a U.S. default on its debt obligations by tapping two civil service retirement funds to make $25 billion in interest payments that were due Wednesday.
In taking securities from the two civil service retirement funds in a process known as “disinvesting” the funds, the Treasury effectively replaces them with IOUs that do not count against the legally set $4.9-trillion debt ceiling. That creates room for the Treasury to borrow more money from investors by selling securities. The Treasury will eventually replace the IOUs with securities once the debt ceiling issue is resolved.
Among market highlights:
* The stock of pulp and paper companies fell on fears of overproduction, analysts said. Among them, Bowater fell 2 7/8 to 40 1/2, Champion International lost 1 5/8 to 45 3/8, Georgia-Pacific shed 2 1/2 to 73 1/2 and Consolidated Papers fell 4 1/4 to 61.
* Big gainers included stocks that should benefit from lower interest rates. Procter & Gamble rose 3 1/2 to 86 7/8; Philip Morris gained 1 5/8 to 89 5/8, and AT&T;, which said it has offered buyouts to almost a quarter of its work force, up 1 1/4 to 64 1/2.
* Technology stocks attempted to reverse a day of losses on Tuesday, but ran out of steam before mid-session. IBM rose 1/4 to 95 5/8; Intel lost 3/8 to 64 3/4; Cisco Systems slipped 1 1/8 to 799 7/8, and Gandalf Technology declined 2 1/4 to 12 5/8.
In overseas trading, Mexico’s Bolsa rose 18.65 points to 2260.18 after the peso weakened 1.8% to 12.64 U.S. cents. Tokyo’s Nikkei index fell 0.67%, and the DAX index in Frankfurt lost 0.51%.
* CPI CLIMBS
Consumer prices climb 0.3%, the fastest clip in five months. D2
