Interest-rate fears weigh on stocks

March 16, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed amid mounting concern that robust economic growth will prompt the Federal Reserve to vote to raise interest rates again at Tuesday's policy meeting.

That concern, which has been rife since the Fed raised interest rates Feb. 4 for the first time in five years, has intensified with the approach of the March 22 meeting of the Federal Open Market Committee, the central bank's policy-setting arm, traders said.

"There's nervousness with all the talk of the Fed looking for any excuse to tighten," said Barry Berman, head trader at Robert W. Baird in Milwaukee.

The Dow Jones industrial average closed down 13.39, at 3,849.59. It fell as much as 23.75 after computer-guided sell orders hit the market in mid-afternoon. The Standard & Poor's 500 Index eased 0.38, to 467.01. The Nasdaq Combined Composite Index rose 0.72, to 793.52. The American Stock Exchange Market Value Index climbed 0.07, to 468.13. Nine stocks fell for every eight that rose on the New York Stock Exchange.

Trading was moderate, with about 305 million shares changing hands on the New York Stock Exchange.

Although yesterday's report on wholesale prices showed inflation is nearly dormant, it was outweighed by reports suggesting the economy is strong enough to fuel inflation down the road, traders said. A rise in crude oil prices exacerbated concern about the Fed's next move on rates.

The Fed yesterday said that output of the nation's factories, mines and utilities rose a stronger-than-expected 0.4 percent in February. It also said the nation's plant-use rate, or capacity utilization, rose to 83.4 percent last month from 83.3 percent in January.

"Those capacity utilization figures suggest the Fed has every reason to snug up credit," said Michael Metz, chief investment officer at Oppenheimer & Co. "It's making people nervous again."

February's overall gain in the Producer Price Index was the biggest since last April and exceeded economists' expectations a 0.4 percent rise. The core rate was below expectations of a 0.2 percent rise.

"Those people who were worrying about inflation are worrying about the wrong subject," said Peter Cardillo, research director at Westfalia Investments.

A round of computer-guided sell orders knocked stock prices from their highs in midafternoon as the yield on the benchmark 30-year Treasury bond climbed to 6.90 percent from the day's low of 6.87 percent. The yield closed at 6.94 percent Monday. Traders said the sell orders may have been linked to Friday's quarterly options expiration, known as "triple witching."

Concern over the Fed offset rallies in financial services and insurance stocks touched off by GE Capital Corp.'s $2.1 billion offer for Kemper Corp.

Kemper, whose operations include life insurance, money management, and brokerage services, soared $4.75, to $61.75, after vaulting $16.125 Monday. Kemper's board rejected the $55-a-share cash bid, but the unit of General Electric Co. said it might sweeten its offer in its effort to expand its money-management business.

Catellus Development Corp., Perrigo Co., Telefonos de Mexico, Intel Corp., and Kemper were the most actively traded U.S. stocks.

Perrigo plunged $5, to $22.375, after Wall Street analysts cut earnings estimates in response to slower sales of cough and cold medicines.

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