Stocks close mixed in heavy trading

August 18, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed yesterday, as the drag of higher interest rates on the economy offset optimism that Tuesday's rate increase by the Federal Reserve will quell inflation.

lead,1 "We're pleased the Fed did what they did and that they're done for a while," said John Zielinski, a portfolio manager in Northern Trust Co.'s institutional asset-management division, which invests about $6 billion. "But I don't think we're going to see explosive rallies from here. What we're in for is a period of moderate growth."

The Dow Jones industrial average fell 8.09, to 3,776.48, after rising as much as 10.68 points initially. Declines in International Paper Co., J. P. Morgan & Co. and Texaco Inc. offset gains in Caterpillar Inc. and McDonald's Corp. The average jumped 24.28 Tuesday, its biggest rise since Aug. 1.

The Standard & Poor's 500 index added 0.16, to 465.17, its highest level since March 23. The index rose 3.78 Tuesday.

The Nasdaq combined composite index did better than the other two market measures, rising 7.15, to 742.66, its highest level since June 6, after climbing 2.62 Tuesday. Intel Corp., up $2.1875, to $63.75, and Microsoft Corp., which rose $1, to $55.875, led the advance.

Eleven stocks rose for every nine that fell on the New York Stock Exchange. Trading was active for a second day, with about 309 million shares changing hands on the NYSE.

Concern that higher rates will curb economic growth drove paper and chemical shares lower. The rate increase also hurt utilities, whose dividends become less attractive when yields on fixed-income investments rise.

International Paper dropped $1.25, to $71.875; Boise Cascade Corp. eased 25 cents, to $26.125; and Weyerhaeuser Co. declined $1, to $40.875. Dow Chemical Co. fell $1.375, to $69.25. The Dow Jones utilities average slid 1.65, to 188.04.

Drug and computer companies rose. Drug stocks, among the biggest gainers in the S&P 500, gained as takeover speculation in the medical industry heats up. American Cyanamid Co. shot up $2.125, to $96.125, after the company accepted American Home Products Corp.'s sweetened bid for $101 a share, or $9.7 billion, up from its original bid of $95 a share.

Eli Lilly & Co. rocketed $3.50, to $58, and Warner-Lambert Co. advanced 62.5 cents, to $79.25. Ventritex Inc. jumped $3.50, to $24, after a plan to give shareholders stock-purchase rights awakened speculation that the maker of devices to regulate heartbeat may be the object of a hostile takeover attempt.

High-technology shares rallied as better-than-expected quarterly earnings from Applied Materials Inc., a maker of semiconductor-manufacturing equipment, and Hewlett-Packard Co., a computer workstation maker, led some to think the slump in computer stocks may be over.

Applied Materials rallied as much as $2.25, to $54.50, before closing down 25 cents, at $52. The company's third-quarter earnings of 68 cents a share, double the year-ago level, surpassed the 65 cents estimated by analysts.

In the computer-networking group, Cabletron Systems Inc. rallied $4.875, to $106.625; Cisco Systems Inc. added $1.50, to $24; and 3Com Corp. jumped $2.25, to $58.625. Among semiconductor stocks, Xilinx Inc. rose $2.875, to $44.75, after soaring $4.125 Tuesday. Integrated Device Technology Inc. gained $1.50, to $22.50.

Computer, semiconductor, and electronic stocks "still look very attractive," said Eugene Peroni, director of technical research at Janney Montgomery Scott Inc. "We have not reached the earnings peaks some believe we have."

Optimism about earnings was offset by a growing recognition that rising rates will increase corporate and consumer borrowing costs and make some fixed-rate investments more competitive, analysts said. That could slow the rate of cash coming into stock mutual funds, they said.

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