Stocks mixed as investors wait on Fed VTC

September 27, 1994|By Bloomberg Business News

NEW YORK -- U.S. bonds were little changed and stocks mixed yesterday as investors declined to place bets before today's Federal Reserve meeting on interest rate policy. The dollar gained.

Some analysts predict the central bank's Federal Open Market Committee will raise the rate on interbank loans today by a half percentage point. The rate is now 4.75 percent, up from 3 percent in February.

The potential rate move had little effect because traders and investors "have already priced in some, if not all, of the Fed [rate increase]," said Jim Kenney, head trader at Prudential Securities. "Now we're going to sit here and wait for them to do something."

The benchmark 30 1/4 -year bond fell 2/32, to 96 18/32, pushing its yield up about one basis point, to 7.80 percent.

Bonds got a boost in early trading from the U.S. dollar, which rose against the German mark and Japanese yen.

The dollar was last trading at 1.554 marks, up from 1.549 marks, and at 98.80 yen, up from 97.85 yen.

A stronger dollar makes U.S. dollar-denominated assets more attractive.

Since Wednesday, when the bond's yield reached 7.80 percent, the highest in more than two years, the closing yield hasn't changed by more than three basis points.

Traders and investors have been reluctant to buy or sell bonds amid a growing belief that the Fed will raise interest rates at today's meeting for the sixth time this year.

Increasing commodity prices, the weakness of the dollar relative to other currencies, and rising long-term interest rates all signal a need for higher short-term interest rates, said Robert McGee, chief economist at Tokai Bank.

But if the Federal Reserve decides to keep rates steady, stocks could rally, traders and analysts said.

"Given how the market got hit last week, I suspect we could get a fairly decent rally, especially in financial shares," said Geoffrey Brod, a portfolio manager who invests about $900 million in stocks for Aeltus Investment Management, a unit of Aetna Life & Casualty Co.

The Dow Jones industrial average rose 17.49, to close at 3,849.24. The average fell the previous four days.

AlliedSignal Inc. led yesterday's rise, followed by Philip Morris Cos. and Coca-Cola Co. United Technologies Corp. was the biggest decliner.

In the broader market, Standard & Poor's 500 index also rose, gaining 1.15, to 460.82, breaking a six-day slump that shaved 15.14 points off the index.

But the Nasdaq composite index, down for the seventh day, fell 1.83, to 755.63.

Semiconductor stocks led the Nasdaq down after CS First Boston Corp. cut its investment ratings of Texas Instruments Inc. and Micron Technology Inc. amid concern that increased Asian production of memory chips will swell global supply and hurt pricing for some of the companies' products.

Micron Technology Inc., the second-most-active U.S. stock, closed off $2.125, at $36; Texas Instruments, the fourth-most-active, was down $3.75, at $68.25.

About four stocks fell for every three that rose on the New York Stock Exchange. Some 266 million shares changed hands on the Big Board.

The dollar rose against the German mark after regional election results raised concern that German Chancellor Helmut Kohl's coalition government could suffer defeat in next month's national election.

The U.S. currency rose against the yen, meantime, amid speculation that the U.S. and Japan are making progress in talks aimed at balancing trade between the two nations.

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