FINANCIAL MARKETS : Dow Rebounds Strongly on Fed Rate Cut
Blue-chip stocks staged a powerful comeback Tuesday from the previous day’s free fall as the Federal Reserve Board surprised Wall Street by lowering interest rates and sparked a bargain-hunting spree.
The Nasdaq composite index, a bellwether of the tech industry, jumped 23.85 points to 1,026.41, its biggest one-day point gain in more than eight years. The Standard & Poor’s composite index of 500 stocks was up 5.12 points at 611.93.
One day after the market had just about given up hope that the central bank would lower interest rates any time soon, Chairman Alan Greenspan and company trimmed a key rate a quarter of a percentage point and the stock and bond markets stormed ahead.
The Dow Jones industrial average gained 34.68 points to 5,109.89, earning back a third of the losses it suffered Monday in a 101-point rout that was tied to faltering hopes of a Fed ease.
Declining issues outnumbered advancers by about 5 to 3 on the New York Stock Exchange.
Monday’s decline and Tuesday’s rally both stemmed from rapidly shifting views on the federal budget and interest rates.
Market experts who pride themselves on predicting the future had been convinced up until this weekend that the Fed would lower rates about half a point. Then, worried that the Fed wouldn’t act until the budget impasse was cleared, investors panicked Monday.
“The budget deliberations caused the Fed to throttle back a bit but did not derail its recognition that the economy needs lower interest rates,” said William Dodge, chief investment strategist for Dean Witter, Discover & Co. in New York.
Technology stocks, which have been weak in recent weeks, sold off in droves Monday as many portfolio managers booked profits they earned earlier in the year. But the fall was so steep that it left plenty of buying opportunities Tuesday, analysts said.
“Technology was a bargain in a pre-Christmas sale,” Dodge said.
Among Tuesday’s market highlights:
* Computer maker Compaq gained 3 1/2 to 49 1/8 and IBM rose 2 7/8 to 91 7/8. Chip maker Intel rose 3 1/8 to 60 3/8. Software companies Microsoft rose 3 7/8 to 90 7/8 and Adobe Systems rose 6 1/2 to 63 3/4.
Hewlett-Packard surged 6 3/4 to 84. Salomon upgraded the stock to “strong buy” from “buy.” Dell Computer surged 6 1/8 to 35 5/8. First Boston upgraded Dell.
* Interest rate-sensitive stocks firmed with the Fed easing. Fannie Mae rose 3 3/8 to 113 7/8, Citicorp rose 1 5/8 to 66 5/8 and Chase Manhattan was up 1 3/4 to 60 1/2.
Fleet Financial added 2 1/8 to 41 1/8 after agreeing to buy New Jersey-based NatWest Bank from its parent National Westminster Bank for $3.26 billion.
* James River extended its loss by 1 7/8 to 23 3/8 after Monday’s 6 1/8-point drop. The company said Monday that it expects fourth-quarter results to be below Wall Street expectations.
* PolyGram tumbled 5 to 50 3/8 after a profit warning.
Most foreign markets closed lower in tandem with Monday’s U.S. fall, although London recovered much of the loss at the end of day. Mexican stocks rose to their highest levels in 14 months after interest rates fell and the peso strengthened, improving the outlook for company earnings.
Natural gas prices soared to their highest level in more than 5 1/2 years as a winter storm blanketed much of the East Coast and the blast of cold weather sparked a surge in demand for heating fuel. Natural gas for January delivery jumped 36.4 cents to $2.868 per million British thermal units, the highest ever for the spot contract at the New York Mercantile Exchange, where gas futures began trading in April 1990.
