Stocks Spooked by Asia; Dollar Strengthens
Stocks retreated from record levels Thursday as a profit disappointment from Merck and a rocky day on Japanese markets provided unsettling reminders of the unresolved economic crisis in Asia.
Bond yields edged lower as the dollar moved higher against Japan’s yen.
Amid a major sell-off in overseas stocks, the Dow Jones industrial average fell 85.70 points to 9,076.57 after trimming a late 120-point slide. The barometer of 30 blue-chip companies had closed at new highs the previous two sessions.
Most broad-market indicators also suffered sizable losses, although another day of big gains among Internet stocks fortified the technology-heavy Nasdaq composite index.
Merck slid $4.06 to $119.44 as the Dow’s second-weakest component after reporting a 14% improvement in first-quarter profit that was slightly shy of Wall Street forecasts.
The drug maker said the persistent strength of the dollar continued to erode the foreign exchange value of its overseas revenue, a concern underscored by another volatile swing in Thursday’s currency trading.
Thursday’s developments “resurrected concern that the Asian contagion may be more contagious than we thought,” said John Shaughnessy, chief investment strategist at Advest Inc. of Hartford, Conn. “People are feeling so complacent about the market, but they’re obviously still sensitive to bad news.”
But even with Thursday’s worries, Shaughnessy and other analysts said the overall market backdrop remains encouraging. The early flow of reports on first-quarter profits, they noted, suggests that Wall Street forecasts will again prove too conservative.
Declining issues outnumbered advancers 2 to 1 on the New York Stock Exchange in heavy trading.
The Standard & Poor’s 500-stock list fell 11.15 points to 1,108.17, and the NYSE composite index fell 5.86 points to 576.91. The Nasdaq composite index, which rose 20 points Wednesday to a new high, fell 5.02 points to 1,858.24. The Russell 2,000 index of smaller companies fell 2.70 points to 484.42.
Wall Street tracked the sell-off in overseas markets amid renewed concern about the ailing Japanese economy. Tokyo’s Nikkei stock index plunged 2.5%, after the Group of Seven meeting in Washington did not spell out an agreement for joint action to help Japan prop up its currency.
That helped push the dollar higher; it ended New York trading at 131.79 yen, up from Wednesday’s 129.36.
The price of the 30-year Treasury bond closed higher, pushing down its yield to 5.87%, from Wednesday’s 5.88%.
Among Thursday’s highlights:
* Cendant was the most active NYSE stock, slumping $16.94 to $19.06, following news that the company, which owns Ramada, Howard Johnson hotels and the Avis auto rental firm, had uncovered possible accounting fraud and expected to lower its 1997 earnings by as much as $115 million.
The development could put Cendant’s planned $3.1-billion purchase of American Bankers Insurance Group in jeopardy, analysts said. ABI fell $7.13 to $57.75.
* Internet-related issues continued their march into mind-blowing territory. Infoseek surged $9.69 to $44.19 and Netscape Communications jumped $5.88 to $25.63 on speculation that it could be gobbled up by Sun Microsystems. Sun, which reported better-than-expected quarterly earnings after the close, fell $1.44 to $40.75.
Yahoo rose $10.56 to $128.88, Excite rose $8.13 to $91.13 and Spyglass rose $6.13 to $14.69.
Overseas, London’s FTSE-100 closed down 1.19%. Hong Kong’s Hang Seng index closed down 1.61%.
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Market Roundup, D8
