Stocks gain, then pull back after short-term rates are raised

March 23, 1994|By Bloomberg Business News The New York Times News Service contributed to this article.

NEW YORK -- U.S. stocks closed little changed yesterday, as a rally amid optimism over the Federal Reserve's decision to fight inflation with another boost in interest rates was tempered by computer-guided sell orders in the final seconds of the session.

A plunge in Novell Inc. shares led the Nasdaq market lower, while losses in Merck & Co. and Philip Morris Cos. pulled down the Dow industrials. Still, five stocks rose for every four that fell on the New York Stock Exchange.

The Dow Jones industrial average closed 2.30 lower, at 3,862.55, after rising as high as 3,880.11 earlier in the day. The average was little changed most of the day as investors awaited news from the meeting of the Federal Open Market Committee, the Fed's policy-making arm.

Within the Dow industrials, weakness in Philip Morris and Merck offset advances in Aluminum Co. of America and Texaco Inc. The average fell 30.80 Monday amid trepidation about yesterday's Fed committee meeting.

The Standard & Poor's 500 Index rose 0.26 yesterday, to 468.80. The Nasdaq Composite Index declined 0.96, to 796.34, led by a drop in Novell, the most actively traded U.S. stock yesterday. Novell plunged $3.75, to $20, on trading of more than 29 million shares, as investors took a negative view of the software company's plans to broaden its product line with two acquisitions costing about $1.5 billion.

Trading was moderate, with about 283 million shares changing hands on the Big Board.

Stocks advanced in mid-afternoon after Fed Chairman Alan Greenspan said the central bank's policy-making arm voted yesterday to raise money-market interest rates in an effort to pre-empt inflation.

Economists interpreted Mr. Greenspan's statement as a sign that the target for the federal funds rate -- what banks charge each other on overnight loans -- will be boosted to 3.5 percent from 3.25 percent. On Feb. 4, the target was raised to 3.25 percent from 3 percent, the first rate increase by the Fed in five years.

Bonds rallied on the move, and stocks followed, up to a point.

"Rates are going to have to go up more than this before it causes people" to move money out of equities, said Grace Messner, a portfolio manager who helps invest about $600 million for Wilmington Trust Co.

Yesterday's rise in stocks also paled beside the response in the bond market, because stocks had fallen less than did bonds since the last increase on Feb. 4, traders said.

The Dow industrials and S&P 500 were both down about 2.5 percent between Feb. 3 and Monday, while the Nasdaq was virtually unchanged during that period.

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