Stocks' skid continues as rates leap

October 06, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks fell yesterday for a third straight day as concern about higher inflation pushed interest rates to their highest point in 2 1/2 years, dampening hopes for stronger corporate earnings.

"Overall it was a down day, but we gained back almost all of the day's earlier losses with some pretty strong buying late in the day," said Jeff Rubin, market analyst at Birinyi Associates Inc.

After falling more than 50 points, or 1 percent, the Dow Jones industrial average partly recouped its losses and closed 13.79 lower, at 3,787.34.

Shares of so-called "cyclical" stocks such as Aluminum Co. of America, Bethlehem Steel and Caterpillar Inc. -- companies particularly sensitive to changes in the economy -- led the decline.

Stocks fell as interest rates climbed after a Commerce Department report showed that factory orders rose a larger-than-expected 4.4 percent in August. Economists had predicted a 3.4 percent gain.

"All the statistics we've seen indicate that the economy may have a bigger head of steam than we originally thought," said Charles Crane, director of research at Spears Benzak Salomon & Farrell in New York, which overseas about $3 billion of assets.

Investors are looking for such signs of growth in the economy, believing they could encourage the Federal Reserve to raise interest rates a sixth time this year to combat rising inflation.

Rising rates make fixed-income investments more attractive relative to stocks, and raise the borrowing costs of consumers and corporations, eventually slowing down corporate profits.

The Dow industrials fell more than 50 points at 12:29 p.m. That triggered the New York Stock Exchange's "uptick" rule, curbing stock-index arbitrage for a second consecutive day and for the 18th time this year.

Broader market measures also pared earlier losses, with the Standard & Poor's 500 index skidding as much as 5.32 points, before closing 1.07 lower, at 453.52. Drug, paper and-health care companies were the biggest losers.

The S&P hospital management index fell 4.55 percent, led by a decline in shares of Columbia/HCA Healthcare, which said it plans to buy Healthtrust Inc. for $3.6 billion in stock. Healthtrust rose $2, to $34; and Columbia slipped $2.50, to $40.25.

The Nasdaq combined composite index fell as much as 9.69 before closing 1.02 lower, at 746.29. The index regained lost territory as Apple Computer Inc. rallied $4.125, to $37.875, amid speculation it may be the subject of a takeover by Motorola Inc.

With interest rates creeping up, the Dow industrials have fallen 1.5 percent this week, and the S&P index has slipped 2 percent, while the yield on the 30-year Treasury bond surged to 7.95 percent yesterday, up from 7.88 percent Tuesday.

Investors are anxiously awaiting tomorrow's report on employment in September for a better reading on the strength of the economy, traders said.

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