Stocks Decline on Fears Over Asia, Interest Rates
Stocks closed lower Wednesday after renewed speculation about higher interest rates and jitters about the Asian economy put the brakes on a rally that was spurred by merger talks between auto makers Chrysler and Germany’s Daimler-Benz.
The Dow Jones industrial average ended down 92.92 points, or 1%, at 9,054.65 following an early gain of more than 30 points.
In the broad market, declining issues led advances 1,793 to 1,149 on moderate New York Stock Exchange volume of about 606 million shares.
The Nasdaq composite index fell 8.23 points to 1,856.68.
Bond prices rose for the first time in three days after the Treasury said it will borrow less than expected this quarter, as the government prepares for its first budget surplus since 1969.
The price of the benchmark 30-year Treasury bond rose 59 cents, or $5.94 per $1,000 bond, to $102.53, pushing its yield down to 5.93% from 5.98%.
On Wall Street, news of a Chrysler-Daimler merger that could be worth $35 billion boosted the Dow early in the day.
Interest rate concerns crept back into the market after Federal Reserve Board Chairman Alan Greenspan met President Clinton on Tuesday for their first official talks in more than a year.
Stocks extended losses in late trading after Federal Reserve Vice Chairwoman Alice Rivlin said stock market values are “hard to justify.” The Dow industrials have more than doubled since May 1995, and 1997 capped the best three-year run in the 30-stock average since the 1930s.
Standard & Poor’s composite index of 500 stocks was off 10.58 points at 1,104.90. The American Stock Exchange index fell 1.95 points to 743.33.
The NYSE composite index of all listed common stocks fell 5.18 points to 574.57.
The market is worried the Fed may still raise interest rates despite the lowest inflation in a generation.
A speech by Greenspan set for today in Chicago will also be combed for hints to what the central bank may do.
Meanwhile, the Fed reported that economic growth was “moderate to strong” in March and April and labor markets remained tight, but there were scattered signs of weakness in a few regions.
The Fed’s latest beige book on regional economic conditions, in contrast to the previous one, issued on March 18, indicated Asia’s financial crisis so far has had only a limited effect on the U.S. economy.
In a dramatic move, the Treasury said it is eliminating the three-year note after next week’s auction and shifting its sale of five-year notes from monthly to quarterly.
Next week’s auctions will retire $3.4 billion in debt, the first time since 1978 the Treasury has paid off part of its debt as part of a quarterly note or bond auction. In the last 20 years, the Treasury has retired debt only during monthly or weekly note and bill auctions.
Market sentiment was also dampened by renewed concerns over the Japanese economy as well as economic and social unrest in other Asian countries.
Riots in Indonesia sent Asian markets tumbling across the board.
Overnight, Tokyo’s benchmark Nikkei stock index lost 357 points, or 2.3%.
The Standard & Poor’s compos Among Wednesday’s market highlights:
* The auto sector was one of the few that moved ahead, with Chrysler up $7.19 to $48.63 and Daimler-Benz’s American depositary receipts up $6.50 to $108.56 on their merger negotiations. Swedish auto maker Volvo’s receipts rose $2.25 to $32.44 and Italian car maker Fiat’s ADRs rose $1.38 to $22.38. But Ford Motor Co. was off 13 cents at 45.75 and General Motors slipped 50 cents to 67.94.
* EntreMed Inc. continued to retreat after the stock exploded Monday on a report about its promising cancer treatment. The stock, which had moved as high as $85 Monday, was down $12 to $31.13. The initial euphoria over hopes for the company’s cancer research were tempered by warnings that a cure was still far from assured.
