Dow Snaps Two-Day Winning Streak
Stock prices ended sharply lower Wednesday, as investors cashed in some recent profits in IBM and worried about the quality of corporate earnings and Brazil’s fragile economy.
The Dow Jones industrial average broke a two-day winning streak, dropping 124.35 points to close at 9,200.23. The blue-chip index climbed as much as 61 points in the first 30 minutes of trading but stumbled in midmorning and never regained its footing.
IBM fell $7.31 to close at $178.31 as investors took profits after big gains Monday and Tuesday on the company’s announcement that it will split its stock.
The Nasdaq composite fell 26.27 points to 2,407.14. The Standard & Poor’s 500 composite lost 9.14 points to 1,243.17. Decliners led advancers on the New York Stock Exchange by 11 to 6.
Concerns that recession will spread throughout Latin America weighed heavily on the stocks of U.S. banks. Dow component Citigroup, which has made many loans in Latin America, fell $1.50 to $54.
Banks were also dragged down after First Union said a change in the way it accounts for the sale of lower-quality home-equity loans will cut 1999 earnings. First Union shares, which fell $4.88 to $52.19, were “weighing heavily on most of the financial services companies,” said Ronald J. Hill, strategist at Brown Bros. Harriman & Co.
Internet stocks continued to surge after online book vendor Amazon.com reported a narrower loss than analysts expected. Amazon rose $10.56 to $125.63. Online auctioneer EBay rocketed $82.63 to $303.50 after a strong earnings report.
The Interactive Week Internet index gained 3.8%. The Nasdaq composite, up almost 40% in 1998, has gained 9.8% this year.
“Although [technology] is a good leading group for the market, it’s uncomfortable that it’s the only game in town,” said Bob Dickey, a technical analyst at Dain Rauscher Wessels in Minneapolis.
Meanwhile, Brazil’s real lost another 3.7% against the dollar to close at 1.91 on Wednesday, despite a hike in interest rates that was designed to bolster confidence and slow investor flight. Brazil abandoned its defense of the currency on Jan. 13, and the real has since lost more than 50% of its value.
Brazil’s central bank raised overnight bank lending rate to 35.5%, from 32.5%, a hike that will be passed along to consumer and business borrowers. Brazil’s largest stock market shrugged off the increase, with the Bovespa index adding 0.55% to 7647.
Higher interest rates are supposed to curb inflation and make Brazil more attractive to investors. But they will also increase its horrific fiscal deficit by raising the cost of borrowing.
Latin America economist Arturo Porzecanski of ING Barings in New York said rates of 40% might be necessary to stop capital outflows that have totaled $8 billion this month.
Expectations rose that Brazil would announce a new fiscal initiative to cut its budget even further, possibly with massive layoffs of government employees.
In Munich, World Bank president James Wolfensohn predicted that Brazil will soon unveil such a package and that it will help stabilize the currency and restore confidence.
U.S. bond yields were little changed.
In currency trading, the dollar surged to a four-week high against the Japanese yen, rising to 115.82 from 113.82, and to its highest level yet against the euro.
Among Wednesday’s highlights:
* Borders Group fell $3.13 to $17.13 after the book retailer issued its second profit warning this month, saying storms are hurting January sales.
* Airline stocks declined after American Airlines’ chief executive said industry capacity was likely to exceed demand for air travel in 1999.
American parent AMR slipped $2.69 to $53.19, US Airways lost $2.94 to $46.06 and Delta Air Lines dropped $2.19 to $49.31.
* The sharp gains in Net stocks did not carry into blue-chip tech names, as Microsoft lost $2.81 to $168.75.
Overseas, Tokyo’s Nikkei index rose 0.5%, Frankfurt’s DAX index was up 1.5%, and the CAC-40 in Paris added 0.7%. But the FTSE-100 index in London eased 0.2%.
Market Roundup, C8
