Stocks Rebound on Interest Rate Hopes
Stocks closed firmer Friday in a sharp rebound, as hopes for an interest rate cut next week by Federal Reserve Board policymakers offset fears about the impact of emerging-market troubles on financial institutions.
Bond prices rose in a flight to quality, while the dollar rebounded from a 17-month low against the German mark.
“I think the notion that you can’t fight the Fed is winning against the crowd that argues you can’t fight the tape,” Charlie Crane, chief market strategist at Key Asset Management, said.
The Dow Jones industrial average erased an early 112-point loss and finished 26.78 points higher at 8,028.77, bringing the week’s gain to 133.11.
Declining issues outnumbered advancers by a 10-9 margin on the New York Stock Exchange.
Combined with a 152-point plunge a day earlier, Friday’s early slide briefly wiped out the remainder of Wednesday’s 257-point surge.
But with a cut in lending rates by the Fed--the main spark behind Wednesday’s rally--still considered a lock on Tuesday, investors used Friday’s weak open as a buying opportunity.
Friday opened with Wall Street bracing for a rough day as news of the near-collapse of Long-Term Capital Management roiled foreign markets.
Also weighing on the market was Thursday’s disclosure by United Bank of Switzerland that market turmoil, including investments in the hedge fund, left it with huge losses this quarter. Other European banks disclosed losses on Friday.
The Nasdaq composite index rose 23.25 points to 1,743.59, up 79.82 for the week, while Standard & Poor’s 500-stock index advanced 2.03 points to 1,044.75, up 24.66 for the week.
The NYSE composite index fell 0.91 to 515.68, and the Russell 2,000 index of smaller companies fell 1.23 points to 369.02.
The Dow slid 100 points in early trading after overseas markets fell in response to Wall Street’s rout Thursday, when investors were worried that more hedge funds may need rescuing after the bailout of Long-Term.
“Concerns about the banking situation are now being offset by the possibility of a rate cut next week,” said Tony Dwyer, chief market strategist at Ladenburg Thalmann. “The rate cut issue is going to dominate the market now, with the other matter already factored in.”
In the bond market, the price of the benchmark 30-year bond rose, pushing its yield down to 5.12% from 5.16% Thursday.
Among Friday’s highlights:
* The impact of worldwide financial problems on U.S. corporate earnings was heightened when one of the bluest of the blue chips, Coca-Cola, issued a profit warning.
Coke, the world’s largest beverage company, forecast lower-than-expected earnings for the second half of 1998 as sales slow because of currency and economic woes in Asia, Latin America and Eastern Europe. Coke fell 50 cents to $56.19.
* Technology shares led the blue-chip advance. IBM rose $2.94 to $133.50 as the Dow’s biggest gainer, while the Nasdaq market drew a boost from Dell Computer, up $2.75 to $66.06, and Intel, up $3 to $88.31.
From its early low, the dollar rose almost three Japanese yen to 136.25, compared with 135.10 Thursday. It rose to 1.6790 marks from 1.6740.
Oil prices closed lower as worries about possible destruction from Hurricane Georges.
At the New York Mercantile Exchange, crude oil for November delivery closed 23 cents lower at $15.75 a barrel.
In Europe, London’s FTSE-100 index fell 2.1%, Paris’ CAC-40 fell 2.1% and Frankfurt’s DAX fell 1.8%. Tokyo’s Nikkei stock average dropped 3.4%. Stock prices fell 1.7% in Hong Kong.
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Market Roundup, D4
