Slow trading nudges Dow up 3.68

May 28, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks closed little changed yesterday as trading wound down before Monday's Memorial Day holiday and inflation concerns resurfaced.

The concern was stirred by a report showing the economy grew faster than expected in the first quarter. Quicker growth is associated with inflation and higher interest rates. Rising rates, in turn, make stocks less attractive relative to fixed-income investments.

The revised gross domestic product "raises awareness that in the next month or so, a little uptick in interest rates may be in the cards," said Ronald Doran, head of institutional equity trading at C. L. King & Associates Inc.

The Dow Jones industrial average closed up 3.68, at 3,757.14, after falling as much as 14.12 points on the GDP report. Gains in McDonald's Corp. and General Electric Co. offset declines in Chevron Corp. and Philip Morris Cos. The average was down 9.21 points for the week.

McDonald's, up $1.125, at $61, raised its quarterly common-stock dividend 12 percent and declared a two-for-one stock split. GE rose 50 cents, to $49, extending Thursday's $1 gain amid speculation the company's jet-engine unit might be awarded part of a big jet order from China.

Philip Morris, meantime, fell 62.5 cents, to $50, as investors continued to react to its board's decision Wednesday not to separate the company's food and tobacco businesses. Some shareholders had urged a split to protect food operations from the potential liability threatening cigarette makers.

Broader indexes also recouped early losses. The Standard & Poor's 500 index rose 0.27, to 457.33, after falling as much as 2.39. The Nasdaq composite index added 1.50, to 733.14, after slipping as much as 2.27. The Russell 2000 index rose 0.52, to 249.46, and the American Stock Exchange market value index gained 1.32, to 440.94.

Eleven stocks rose for every nine that fell on the New York Stock Exchange. About 186 million shares changed hands on the NYSE.

A weak bond market checked gains in stocks, traders said. Yields on Treasury bonds rose after the Commerce Department said the economy grew at an unexpectedly strong 3 percent in the first quarter, up from the initial estimate of 2.6 percent. Brisk growth is associated with more inflation, which diminishes the value of fixed-income securities.

Underscoring concern about inflation, Federal Reserve Chairman Alan Greenspan yesterday left room for the Fed to raise interest rates again. In testimony before the Senate Banking Committee, Mr. Greenspan said the Fed has "substantially" -- but not completely -- removed the stimulus to economic growth that low interest rates had provided.

The Fed has raised interest rates four times this year to ward off inflation. The yield on the benchmark 30-year bond rose as high as 7.44 percent, up from 7.36 percent late Thursday, before settling back to 7.39 percent. The bond market closed an hour early in observance of Memorial Day.

Declines in international oil, drug, long-distance phone carriers and tobacco shares offset gains in electrical equipment, entertainment, general retail stores and steel companies.

Steel stocks gained on positive analysts' comments in the Wall Street Journal's "Heard on the Street" column. USX-U.S. Steel rallied $1, to $34.75; Bethlehem Steel went up $1.125, to $19.625; and Rouge Steel soared $2.50, to $24.875. Inland Steel Industries Inc. climbed $1.875, to $32.125.

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