Stocks mostly lower amid concern over inflation


January 04, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mostly lower yesterday as concern that economic growth might quicken inflation in 1994 sent yields on Treasury bonds to their highest rate in 4 1/2 months.

If interest rates move higher, earnings must keep pace or stocks will fall, money managers said.

Record-low interest rates prompted investors to put billions of dollars into stocks in the past three years in hopes of higher returns than those available on bank certificates of deposit. Now, the concern is that rising rates will persuade people to keep more money in cash or fixed-income investments, they said.

The Dow Jones industrial average closed with a slight gain, while broader indexes fell. Eleven stocks declined for every seven that rose on the New York Stock Exchange.

The industrial average rose 2.51, to 3,756.60, after falling 21.79 points Friday. Its closing high of 3,794.33 was set last Wednesday.

Among broader indexes, the Standard & Poor's 500 Index declined 1.02, to 465.43, after declining 2.19 points Friday. The Nasdaq Combined Index, down for the first time in eight sessions, dropped 6.10, to 770.72. It rose 5.74 Friday. The American Stock Exchange Market Value Index rose 0.09, to 477.24.

Concern about the inflation outlook was rekindled by stronger-than-expected economic reports yesterday and a 40-cent-a-barrel increase in oil prices, traders said.

The National Association of Purchasing Management said its December index of manufacturing conditions rose to 57.9 from 55.7 in November. A reading above 50 suggests expansion in manufacturing.

Separately, the Commerce Department said construction spending in November rose 1.8 percent, following October's gain of 2.5 percent. Crude prices soared after a report

of an attack on a Chevron Corp. facility in Angola, traders said. West Texas Intermediate, the benchmark U.S. crude, was up 39 cents, at $14.56 a barrel.

Stock trading was moderate, with about 269 million shares changing hands on the Big Board.

The yield on the benchmark 30-year bond rose as high as 6.43 percent yesterday, the highest since Aug. 12, when it closed at 6.44 percent. The yield closed at 6.35 percent Friday, up from the record low of 5.77 percent set Oct. 15.

Shares of international oil companies and gold producers were among the biggest gainers yesterday, benefiting from the rebound in crude and the concern over inflation. Airline stocks fell, meantime, as higher crude prices raise fuel costs.

Texaco Inc. rose 75 cents, to $65.50, and Chevron Corp. gained 87.5 cents, to $88. UAL Corp., parent of United Airlines, shed $2.125, to $143.875, leading a decline in the Dow Jones transportation average. The transports dropped 10.73, to 1,751.59.

Among gold stocks, American Barrick Resources Corp. climbed $1.75, to $30.125; Placer Dome Inc. leapt $2.375, to $27.25; Homestake Mining rose $1.75, to $23.75; Echo Bay Mines went up $1.25, to $14.125; and Newmont Mining Corp. rose $2, to $59.625.

Federated Department Stores Inc. rallied $2, to $22.75. The retailer said it had bought 50 percent of Prudential Insurance Co. of America's secured bankruptcy claim in R.H. Macy & Co. for $449.3 million in a move that could lead to a combination of the retailers' operations.

Shares of Mexican companies fell after the New York Times reported that a rebel uprising in Mexico's poorest and southernmost province left at least 57 people dead.

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