Dow Off 113 After Japanese Brokerage’s Collapse
U.S. stocks fell sharply Monday and the dollar rose against the yen after Japan’s fourth-largest securities broker collapsed in the largest financial company failure since World War II.
Meanwhile, U.S. bond yields crept higher, failing to benefit from stocks’ woes, as has been the case in recent weeks. Analysts cited worries that Asian investors may begin unloading U.S. Treasury bonds they own.
Wall Street was trading in a vacuum, absent Tokyo’s reaction to the collapse of Japan’s Yamaichi Securities Co. Tokyo markets were closed Monday for a public holiday but immediately fell after the opening bell today.
Analysts said the brokerage house’s failure was potentially more crippling to world markets than the recent currency turmoil in Asia because Japan is the world’s second-largest economy. Yamaichi Securities leaves a trail of debt worth $23.6 billion.
“It’s very clear the world financial crisis is getting much deeper and much more serious,” said Hugh Johnson, chief investment officer for First Albany Corp. “This is a very serious financial accident, and there are more to come.”
The Dow Jones industrial average lost 113.15 points, or 1.4%, to close at 7,767.92. In the broader market, declining issues swamped advances 3 to 1 on the New York Stock Exchange.
The Standard & Poor’s 500-stock index sank 1.7% to 946.67, and the Russell 2,000 index of smaller stocks lost 1.7% as well, to 427.83.
The session’s steepest drop came in the technology-heavy Nasdaq composite index, which tumbled 33.76 points, or 2.1%, to 1,586.99.
Pharmaceutical stocks, banks, financial services companies and airlines all moved lower. But the worst-hit sector was technology, led lower by semiconductor issues because they are considered to be more exposed than many companies to the Asian turmoil.
“You don’t have to be a genius to realize that if you have a couple of major economic powers that are running into trouble and our companies do business there, it’s going to have some impact,” said Guy Truicko, who helps oversee $1 billion for Unity Management in Lake Success, N.Y.
“As people begin to dig deeper, they tend to see the U.S. economy’s link to Japan and the link to Asia, and the deeper you dig the worse it looks,” said George Jennison, managing director in charge of Nasdaq trading at Wheat First Butcher Singer in Richmond, Va.
Stocks were also hurt by an unusually weak day in the bond market, which has generally been viewed as a safe haven by jittery investors during recent bouts of turmoil on overseas markets.
Treasury yields rose modestly, with the bellwether 30-year T-bond yield ending at 6.06%, up from 6.03% on Friday, which was a 21-month low.
Traders said some investors are worried that the Japanese government, and other Asian investors, will be forced to raise cash for their ailing economies by selling their substantial holdings in U.S. Treasury bonds.
Bank of Japan Gov. Yasuo Matsushita said Monday that the central bank is prepared to use its foreign currency holdings to provide funds for Japanese financial institutions overseas after Yamaichi’s failure. The remarks raised concern that Japan may choose to sell some of its Treasury holdings.
But a rise in the dollar Monday suggested that it wasn’t Asian investors selling bonds.
In late New York trading, the dollar was at 126.80 yen, up from 126.40 Friday.
Plenty of investors doubt Japan will choose to shuck Treasuries to raise money when it can sell lower-yielding Japanese securities instead.
Japanese investors are the biggest holders of U.S. government debt, with a record $321.2 billion at the end of August, according to the Treasury Department.
Overall currency dealings were relatively thin Monday.
“Ultimately, I think the yen will weaken further but the market wants to see how the Nikkei [stock index] performs,” said Filo Sedillo, head of foreign exchange sales at Merrill Lynch in New York.
Among Monday’s highlights:
* In the tech sector, Intel lost $2.13 to $78.13, Texas Instruments fell $2.38 to $49.75 and Compaq lost $3.69 to $60.
* Bank stocks falling included Citicorp, off $4.81 to $122.06; Wells Fargo, down $7.13 to $293.25; and BankAmerica, down $2.25 to $73.
* Major multinational drug stocks were weak, with Merck off $2.06 to $92.50, Warner Lambert down $1.94 to $142.25 and Pfizer down $2.31 to $71.50.
In commodities trading, gasoline futures jumped almost 2% amid forecasts for record highway travel during the Thanksgiving holiday week as pump prices hover close to their lowest levels of the year.
About 27.2 million American motorists will take trips longer than 100 miles during the long holiday weekend beginning Wednesday. That’s 3% more than last Thanksgiving, the American Automobile Assn. said.
