Stocks gain amid inflation worries

March 15, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mostly higher yesterday amid lingering concern about the inflation outlook.

"The major question for the equity market going forward is how fast inflation accelerates, because that will determine where interest rates go next," said Jeffrey Applegate, investment strategist at CS First Boston Corp.

The Dow Jones industrial average rose 0.28, to 3,862.98, after a late bout of computer-driven sell orders shaved almost 10 points off the average. The Standard & Poor's 500 Index climbed 0.95, to 467.39, and the Nasdaq Composite Index rose 3.60, to 792.80.

The American Stock Exchange Market Value Index advanced 2.08, to 468.06. Nine common stocks were higher on the New York Stock Exchange for every eight shares that declined.

"Everybody's watching and hoping that inflation is low enough to keep interest rates down," said Edward Laux, head trader at Kidder, Peabody & Co. "As long as rates stay low, the stock market will flourish."

Investors will get more information about inflation today when the Labor Department releases its report on producer prices for February. Analysts are forecasting that prices paid to factories, farmers and other producers will show an increase of 0.4 percent, according to a survey by Bloomberg Business News.

"I wouldn't be surprised to see the Fed move again to raise interest rates," said Frederick Kobrick, who oversees about $1.3 billion for Metropolitan Life Insurance's State Street Research & Management Co.

The financial markets have been unsettled since the Federal Reserve raised interest rates Feb. 4. Since that day, the Dow industrials are down about 2.8 percent.

Interest rates were up yesterday after the Federal Reserve Bank of Atlanta said its survey of businesses in the Southeast reveals that inflation is more of a problem than had been thought.

The report caused the yield on the 30-year Treasury bond to rise to 6.94 percent from a low of 6.90 percent in the previous session. When rates ad vance, investors tend to move money into fixed-income investments from stocks.

Shares of electric utility and telephone companies were among the most poorly performing issues on the stock market. These stocks often fall when interest rates rise. MCI Communications Corp. declined 37.5 cents, to $24.25; and Ameritech Corp. fell 62.5 cents, to $40.625;

MCI, Telefonos de Mexico S.A., Unisys Corp., Hanson PLC and (( Apple Computer Inc. were the five most actively traded issues on the U.S. Composite.

IBM shares rallied $1.25, to $57.125. IBM and Baxter Healthcare Corp. sold a computer software partnership to Physician Computer Network Inc. for an undisclosed amount.

Walt Disney Co. fell $1.125, to $45.875. The company will share the burden of refinancing its 49 percent-owned Euro Disney SCA with creditor banks. Backing new credit lines and buying more of the unit's debt are part of Disney's estimated $500 million commitment to the project.

Federal Express Corp. soared $3, to $70.625. The air courier and package delivery service said net income in the fiscal second quarter, which ended Feb. 28, surged to 55 cents a share from 15 cents a year ago, topping analysts' expectations of 46 cents a share.

Motorola Inc. rose $1.375, to $107. Motorola and its Japanese partner Idou Tsutsin announced an agreement Saturday that would increase the U.S. company's mobile telephone coverage to 95 percent of Japan's population from 56 percent previously.

Fibreboard Corp. advanced $2.625, to $37.125. The Walnut Creek, Calif., maker of building materials rejected an unsolicited offer from a group led by Carl Pohlad to buy the company for $42.50 a share.

Reader Digest Association Inc. gained 62.5 cents, to $41.625. The publishing company's board of directors approved a program to repurchase up to 5 million shares, or more than 5 percent of the 95 million outstanding shares, of its Class A common stock.

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