Dow overcomes China sell-off
China’s stock market rang a warning bell Thursday, but many global investors seemed to think it was a false alarm -- like the one that occurred in late February.
The Dow Jones industrial average crept up to a record high, despite a heavy sell-off in Chinese stocks before Wall Street opened.
The Dow’s performance -- up 4.79 points to a record 12,808.63 -- wasn’t matched in the broader market, where most major indexes were modestly lower. Yet U.S. and European stocks still appeared to largely shake off the plunge in Chinese shares, which dragged the Shanghai composite index down 4.5%.
It was the biggest decline in that market since the Shanghai index plummeted 8.8% on Feb. 27. That slide helped pull markets sharply lower worldwide for several days. The Dow sank 416 points, or 3.3%, on Feb. 27.
But stock prices in China and many other markets recovered fairly quickly after the last pullback, and the speed of that rebound may have kept some U.S. investors from knee-jerk selling Thursday.
If you sold in late February, “you made the wrong bet,” said Todd Clark, director of trading at Nollenberger Capital Partners in San Francisco.
The Dow lost 5.8% from Feb. 20 to March 5. Since March 5 it’s up 6.3%, and has risen in 14 of the last 15 sessions.
On Thursday the Dow fell nearly 70 points early in the session, then rebounded. It was helped by another rally in major drug stocks, which have been hot performers recently.
Better-than-expected first-quarter earnings reports boosted Merck, which gained 46 cents to $50.39, and Schering-Plough, which surged $2.45 to $31.
Thousand Oaks-based biotech giant Amgen jumped $2.31 to $62.32 after the company said a study of its anemia drug Aranesp showed the drug didn’t increase the chance of death for lung cancer patients.
But falling stocks outnumbered winners by nearly 2 to 1 on the Big Board.
Energy stocks were weak as near-term oil futures in New York fell $1.30 to $61.83 a barrel, the fourth decline in five sessions.
The Standard & Poor’s 500 index eased 1.77 points, or 0.1%, to 1,470.73.
The technology-dominated Nasdaq composite index fell 5.15 points, or 0.2%, to 2,505.35. The tech sector got good news after regular trading ended, however, when Google reported quarterly earnings that beat expectations.
The drop in Chinese stocks Thursday was triggered by fresh concerns that the nation’s economy may be overheating: The market slid in anticipation of the government’s report on first-quarter economic growth, which was released after stock trading ended.
In fact, that report showed the economy grew at an 11.1% pace in the first quarter, up from 10.4% in the fourth quarter, and that inflation surged in March. That fueled concern that China would raise interest rates and take other steps to rein in growth.
Any significant slowdown in China’s red-hot economy could, in turn, be felt across Asia and the rest of the world.
But many economists question whether China’s government has the willpower to meaningfully tone down growth.
Donald Straszheim, an economist and China expert at Roth Capital Partners in Newport Beach, said he expected the Chinese economy to continue growing at a double-digit pace this year and in 2008, when China will host the Summer Olympics.
Most other Asian markets fell with Chinese shares Thursday, but the damage was limited. Japan’s Nikkei 225 index lost 1.7%, the Hong Kong market dropped 2.3% and the South Korean market was off 1.4%.
In Europe, the German market eased 0.5% and British stocks slipped 0.1%.
Early today in Asia, shares were recovering in China and in other markets. The Shanghai composite was up 2.9%, suggesting that Thursday’s drop was indeed another false alarm.
Among the day’s market highlights:
* Stocks moving on quarterly earnings reports included Merrill Lynch, down 55 cents to $90.11; Bank of America, off 91 cents to $50.91; Harley-Davidson, up $1.96 to $63.22; and Union Pacific, up $2.69 to $116.47.
* Marriott tumbled $3.88 to $47.99 after the hotel chain reported sharply higher quarterly earnings but also trimmed its revenue forecast for 2007.
* Game software firm Electronic Arts slid $2.40 to $51.86 after Pacific Crest Securities said the company might miss sales forecasts in the current quarter.
* Wireless telecom company MetroPCS got a rousing investor welcome on its first trading day. The stock soared $4.40 to $27.40. The firm sold 50 million shares at $23 each Wednesday.
* Treasury bond yields edged up after the Conference Board said its index of leading economic indicators rose 0.1% in March, reversing two months of declines. Some bond traders may have been hoping for a weaker reading to bolster hopes for lower interest rates. The 10-year T-note yield rose to 4.67% from 4.65% on Wednesday.
* The euro continued to rise against the dollar, reaching $1.36 in New York, up from $1.358 on Wednesday. The all-time high was $1.364 in 2004.
