Stocks close mixed Dow rises 13.80

September 28, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed yesterday as the Federal Reserve's policy-making arm left interest rates unchanged, raising concern about the central bank's inflation-fighting credibility and sending the dollar lower and gold higher.

"People are almost disappointed [the Fed] didn't raise," said Phillip Krauss, assistant manager for equity trading at Kemper Securities in Chicago. Some investors are concerned that rate increases "could be bigger down the road" because of the Fed's inaction yesterday, he said.

Reflecting inflation concerns, yields on the benchmark 30-year Treasury bond rose to 7.84 percent yesterday, the highest since June 1992 and up from 7.80 percent Monday.

The Dow Jones industrial average rose for a second day, climbing 13.80, to 3,863.04, as stocks that benefit from rising commodity prices, such as International Paper Co., Aluminum Co. of America and Union Carbide Corp. advanced.

Among broader measures, the Standard & Poor's 500 index added 1.23, to 462.05. The Nasdaq composite index dropped 0.26, to 755.37, hurt by lower prices for MCI Communications Corp., Kelly Services, Intel Corp., Lotus Development Corp., and Vanguard Cellular Systems Inc.

Almost six stocks fell for every five that gained on the New York Stock Exchange, where trading reached 290 million shares, up from 272 million Monday.

Concern about inflation mounted as the price of gold rose $3.60 an ounce, to $401.40, the first time bullion closed above $400 since Aug. 2, 1993, and as the dollar retreated against the German mark and Japanese yen.

Gold is a traditional hedge against rising prices, and a falling dollar makes imported goods more expensive and U.S. stocks and bonds less attractive to overseas investors.

Yesterday's decision by the Fed's Open Market Committee still leaves investors convinced that rates will go up once more before the end of the year to dampen inflation, said Jack Baker, head of trading at Furman Selz Inc. The question is "whether it's October or November," he said.

Investors are concerned that inflation will accelerate and force up interest rates. "There's very little question now that there are some inflationary tendrils creeping into the economic stew here," said Thom Brown, managing director of Rutherford, Brown & Catherwood in Philadelphia, which manages assets of $270 million.

"Prices of steel are going up, and other basic raw material prices are increasing," Mr. Brown said. Chemical prices are gaining "almost across the board."

Shares of steel, chemical and paper companies climbed after PaineWebber Inc. metals analyst Peter Marcus said steelmakers are benefiting from surging demand, rising prices and the effect of the companies' moves to cut production costs.

Supplies of steel around the world are "tight" and will lead to "unprecedented highs" for scrap steel prices in both 1995 and 1996, Mr. Marcus said.

WHX Corp. rose 37.5 cents, to $16.50; Rouge Steel Co. added 62.5 cents, to $29.125; Geneva Steel Co. climbed $1.125, to $17.375; Alcoa spurted $1.75, to $87.125; International Paper rose $1.375, to $79; DuPont & Co. added 25 cents, to $57.75; and Union Carbide gained 62.5 cents, to $34.625.

A report yesterday showed consumer confidence declined in September for the third month in a row as consumers' optimism about the economy continued to fade. That meant it's "too early for the Fed to move" again, just six weeks after it last raised rates, said Alan Ackerman, market strategist at Reich & Co. "It appears the economy is slowing."

"The consensus at the moment is the rate hike will be put off until mid- or late November," Mr. Ackerman said.

Rising interest rates can damage stock prices if a slower economy dampens corporate earnings. They also make less risky investments in bonds relatively more attractive than equities.

Auto stocks rose after Smith Barney Inc. raised its opinion on Ford Motor Co. to "outperform" from "neutral" and Chrysler Corp. to "buy" from "neutral."

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