Market stumbles on interest fears

September 13, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks fell for a second day amid speculation that today's consumer-price report will confirm a rising inflation rate, possibly leading the Federal Reserve to lift interest rates soon.

Concern about the CPI offset more merger announcements that lifted individual stocks, including the $2 billion acquisition of Borden Inc. by Kohlberg Kravis Roberts & Co.

"The market is still very, very nervous over interest rates," said Richard Ciardullo, head trader at Eagle Asset Management Inc. "All eyes are going to be on the economic news this week, starting [Tuesday]."

The Dow Jones industrial average fell 14.47 points, to 3,860.34. The average tumbled 33.65 on Friday, its biggest one-day drop since June 30, after the government reported a bigger-than-expected 0.6 percent rise in producer prices.

Yesterday, losses in Caterpillar Inc., International Paper Co. and Goodyear Tire & Rubber Co. offset gains in United Technologies Corp. and Sears, Roebuck & Co.

The Standard & Poor's 500 index dropped 1.97, to 466.21, extending Friday's 4.96-point slump. The Nasdaq composite index eased 3.72, to 760.01, after tumbling 5.57 Friday.

Two stocks were down for every one that rose on the New York Stock Exchange. Trading was moderate, with about 244.6 million shares changing hands.

Electric utilities, which reflect interest-rate expectations, were one of the biggest decliners for a second day. Rising rates would inflate utilities' financing costs at a time when regulators are turning down requests for rate increases.

The Dow Jones utilities average declined 1.58, to 178.29, extending Friday's 3.3-point loss.

Leading the drop, Consolidated Edison Co. of New York fell 62.5 cents, to $23.125, its lowest prince since January 1991. A Smith Barney Inc. analyst cut his rating of the utility to "underperform" after New York state regulators recommended a rate reduction instead of the increase Con Ed sought.

The Labor Department is scheduled to release the Consumer Price Index for August today. Economists surveyed by Bloomberg Business News estimate the prices U.S. consumers pay for goods and services rose 0.4 percent last month and were up 0.3 percent excluding food and energy.

Speculation on a rate increase before the November congressional elections was first aroused by Friday's bigger-than-expected gain in August's producer prices.

"That was the first negative reading you had, and now you've got a whole slew of reports this week," said Barry Berman, head trader at Robert W. Baird & Co.

"All this fear of higher interest rates stole the spotlight from a string of merger announcements that lifted shares of companies being acquired," he said.

Earlier yesterday, KKR, a leveraged-buyout specialist, agreed to buy Borden for $14.25 a share, sending the struggling food maker's stock up $2, to $13.625 a share, with more than 10 million shares changing hands.

Borden was the most actively traded U.S. stock. KKR plans to swap about $2 billion worth of stock in RJR Nabisco Holdings Corp., or half its stake in the food and tobacco maker, for all of Borden.

Also yesterday, United Healthcare Corp. agreed to buy Gencare Health Systems Inc., a rival health maintenance organization, for $47.50 a share, or $520 million, driving Gencare stock up $6.50, to $46.

And SmithKline Beecham PLC sold Sterling Winthrop's U.S. over-the-counter medicines division to German drugmaker Bayer AG for $1 billion. On Aug. 29, SmithKline bought Sterling from Eastman Kodak Co. for $2.95 billion. SmithKline's American depositary receipts, each equal to five equity units, rose 50 cents, to $30.125.

Within the Dow industrials, Goodyear Tire fell 75 cents, to $33.875. Goodyear and Cooper Tire & Rubber Co. were both lowered to "neutral" by a Merrill Lynch & Co. analyst, Harvey Heinbach, on concern that rising raw-materials costs might hinder the company from achieving analysts' earnings estimates.

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