Stocks Gain, Yields Drop on Tame Inflation
Stocks closed modestly higher Thursday as bond yields fell again on mild inflation news.
The Dow Jones industrials added 13.71 points to 7,942.03, after trading as high as 7,997.
In the broad market, winners topped losers by 16 to 13 on the New York Stock Exchange and by 21 to 20 on Nasdaq. The Nasdaq composite added 3.29 points to 1,586.69.
Stocks got support from the bond market, which rallied after the government reported that the consumer price index rose a mere 0.2% in July, in line with forecasts.
The data helped calm recent fears that the economy is accelerating at a pace that would rekindle higher inflation. Any sign of a pickup in inflation could force the Federal Reserve Board to put on the brakes by pushing up interest rates. Fed policymakers meet on Tuesday.
On Thursday, the consumer price index report and other reports showing a moderate pace of expansion in the economy helped push the yield on the 30-year Treasury bond down to 6.54% from Wednesday’s 6.62%. The latest yield is the lowest since Aug. 7.
“It’s pretty obvious the Fed isn’t going to raise rates,” said Ken Anderson, who oversees more than $7 billion at Evergreen Asset Management in Purchase, N.Y.
“It’s good stuff and the market took it that way,” said Noralyn Marshall, an economist at Scotia Capital Markets, referring to the latest economic data.
Still, the stock market seemed on edge, analysts said.
“Low inflation is not news anymore,” said Peter Canoni, chief of equity investments at Aeltus Investment Management in Hartford, Conn. “We’ve had so much good news--strong profits, a capital gains tax cut, a lower deficit--and now we don’t have anything new. It’s a loss of momentum in the good news department.”
The Dow has pulled back about 4% from its all-time high reached last week.
“This is the kind of consolidation that has to go on after a significant run-up,” said Scott Bleier, chief investment strategist at Prime Charter.
Among Thursday’s highlights:
* The Dow was lifted by some of the consumer-products issues that have led the recent pullback. Procter & Gamble gained $2.69 to $144.44, Johnson & Johnson added $1.94 at $59 and Philip Morris rose $1.19 to $46.31.
But Coca-Cola continued to slide, down 38 cents to $60.06.
* Many drug stocks rebounded after diving in recent days. Warner Lambert shot up $5.19 to $132.69, and Bristol-Myers jumped $3.63 to $76.13.
* Nasdaq was helped by strength in Cisco Systems, up $1.88 to $77, and 3Com, up $1.56 to $55.75. Among other tech issues, Hewlett-Packard gained $2 to $69.88 ahead of its earnings report next week.
But Earthlink sank 63 cents to $11 one day after the Internet-access firm issued confusing statements about its current cash needs.
* On the downside, oil-drilling companies fell on speculation that drilling contractors may get less money for renting rigs in the Gulf of Mexico. Schlumberger lost $1.69 to $72.25, Global Industries dropped $1 to $30.88 and Halliburton was off 81 cents to $43.63.
* Many financial stocks gained as bond yields fell. Citicorp rose $1.38 to $136.38, and Merrill Lynch jumped $2 to $65.25. But Wells Fargo fell $2.31 to $262.19 after disclosing that it plans more layoffs.
In currency trading, the dollar rebounded against the Japanese yen amid concern that a worsening currency crisis in Southeast Asia could damage Japan’s fragile economy.
The yen slumped across the board after Indonesia announced a de facto float of its currency on Thursday after similar actions by neighboring countries in recent weeks.
Traders feared that Japan might be forced to devalue its own currency to compete with other countries in the region.
“There is definitely a spillover effect coming in from these Far Eastern devaluations,” said Diane Hirschberg, a director of foreign exchange sales at Bank of Montreal in New York.
“I think the Japanese are getting concerned about that because they are major trading partners with other Far East countries and they are competing for exports to a certain extent,” she said. A weaker currency makes a country’s products less expensive overseas.
In New York, the dollar traded above 118 yen before closing at 117.94 yen, up from 115.69 on Wednesday.
Asian stock markets were mixed on news of the rupiah’s devaluation.
Indonesia’s key stock index sank 2.4% on the news. And Philippine stocks fell for a sixth day, dragging the main index to an 18-month low, on concern a weakening peso and moves by the central bank to curb money supply will hurt corporate profits.
But in Shanghai, stocks zoomed, rising near their 10% daily limit, on speculation authorities will allow Taiwan funds to invest in mainland stocks.
Also, Malaysian stocks rose for a second day on optimism Malaysia will take moves to rein in imports and stem its widening trade deficit.
In a bid to calm investors who have dumped Malaysian stocks and currency the last month, Finance Minister Anwar Ibrahim said t he’ll take measures to reduce imports. He added that Malaysia may make tax changes to bolster exports.
The key Malaysian stock index rose 9.71 points, or 1.1%, to 918.54.
Market Roundup, D6
