Stocks, Dollar Move Lower; Bonds Steady : Market Overview
Blue chip stocks closed lower as profit taking reversed an early advance, which was spurred by a cut in German interest rates.
* Inaccurate early news reports that Germany’s central bank failed to cut rates triggered sharp swings in the dollar, misleading many currency traders into money-losing transactions. The dollar settled lower overall.
* Treasury bond yields ended mostly unchanged.
Stocks
The cut in interest rates by Germany’s Bundesbank sparked broad early gains on Wall Street, driving the Dow Jones industrials up as much as 30 points.
But selling again set in, and the Dow closed with its fourth consecutive loss, down 10.27 points to 3,429.17.
Big Board volume was a heavy 310 million shares, and losers topped winners by nearly 3 to 2.
The surge of profit taking overwhelmed big gains in some major industrial stocks, after the companies posted surprisingly healthy first-quarter earnings.
Gene Jay Seagle, technical analyst at Gruntal & Co., said the continuing drop in European interest rates will mean a boost for both European and U.S. economies and help corporate earnings long-term.
“I was surprised to see the market pull back to the extent that it did in the face of the Bundesbank action,” he said.
Many traders say they sense that the market is still in the early stage of a short-term correction from last Friday’s record Dow high of 3,478.61.
Among the market highlights:
* The day’s good news was provided by Caterpillar, Dow Chemical, Kennametal and some other major industrial stocks. The companies reported first-quarter earnings well ahead of expectations, a sign that they can profit even from a moderate uptick in the economy.
Caterpillar, which posted earnings of $34 million versus a loss of $157 million in the year-ago quarter, soared 5 1/4 to 67 1/2.
Dow Chemical, meanwhile, zoomed 3 1/8 to 56 even though it reported a 28% drop in operating earnings in the quarter. Analysts had expected far worse.
Kennametal, an industrial tool maker, jumped 2 7/8 to 34 3/4. Its quarterly earnings were up 36% even though sales were barely up.
* Other industrial stocks rising sharply included Monsanto, up 1 1/8 to 55 1/4; BWIP, up 1 1/8 to 24 5/8; Ingersoll-Rand, up 2 1/8 to 33, and Timken, up 3/4 to 30 1/2.
But profit takers zeroed in on truck and truck parts makers. Cummins Engine tumbled 6 1/4 to 89 7/8 and PACCAR lost 5 to 60 1/2.
* Railroads and airlines were also targeted by sellers. Conrail led the decline after it warned of potential weakness in earnings ahead because of the economy’s fragility. Conrail lost 5 3/8 to 51 3/4, which also pulled Norfolk Southern down 2 1/2 to 61 5/8 and Union Pacific 2 1/8 to 60 3/4.
Among airlines, Southwest eased 1 1/4 to 37 3/4, USAir sank 2 to 22 1/4 and Delta lost 2 to 57 3/8.
* Drug stocks took a new pounding. Bristol-Myers fell 2 3/8 to 58 5/8, Warner-Lambert lost 2 1/8 to 71 7/8, Pfizer sank 2 to 64 and Merck tumbled 1 5/8 to 35 1/8. Also, Alza slumped 5 3/8 to 28 1/2 after the firm said poor sales in the nicotine patch market hurt first-quarter earnings and could do the same for the year.
* Many technology stocks rebounded, but Intel plummeted 6 3/4 to 96, resuming its downtrend on fears of rising competition in the computer chip market.
Overseas, Tokyo’s Nikkei average lost more ground, falling 181.70 points to 19,591.31.
In Frankfurt, the DAX average eased 0.13 point to 1,666.74 despite the latest interest rate cuts. In London, the FTSE-100 average added 11.5 points to 2,881.1.
Currency
In New York, false early reports that the Bundesbank had not cut interest rates were quickly corrected to show that the central bank’s policy-making council in fact had cut two key short-term rates.
But market participants said many currency traders suffered significant losses because they initially sold dollars when they should have been buying.
Despite the rate cuts, the dollar ended broadly lower, dragged down by further appreciation in the Japanese yen.
The dollar fell early in the day to 1.594 German marks on the false reports that the Bundesbank hadn’t cut. When the news was corrected, the dollar rocketed to 1.614 marks. But by the close the dollar was back to 1.602 marks.
The yen, meanwhile, continued to march higher, mostly undeterred by reports of further interventions by the Bank of Japan during Tokyo trading.
In New York, the dollar broke through the key 110-yen level, retreating to a record low of 109.86 yen from Wednesday’s 110.71.
Other Markets
The Treasury’s 30-year bond yield was unchanged at 6.74%.
Traders said shorter-term Treasury note yields eased slightly following another Federal Reserve purchase of intermediate securities, probably on behalf of a foreign central bank.
The market had a mixed reaction to the government’s weekly employment report, opening on a weak note and then trading sharply higher before ending flat.
The Labor Department reported the number of newly laid-off workers filing claims for jobless benefits shot up by 26,000 last week, worse than the 15,000 increase expected.
The federal funds rate, the interest on overnight loans between banks, fell to 2.938% from 3.063% late Wednesday.
Elsewhere, gold for current delivery edged up 50 cents an ounce to $340 on New York’s Comex. Silver added 1 cent to $3.91.
On the New York Merc, light, sweet crude oil for June delivery fell 22 cents to $20.15 a barrel.
Market Roundup, D6
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