NEW YORK -- U.S. stocks closed mixed yesterday as rallies in International Business Machines Corp. and General Electric Co. offset concern that economic reports due this week will spur the Federal Reserve to raise interest rates.
The Dow Jones industrial average, off as much as 14.8 in early trading, rebounded to close down 1.68, at 3,875.15, its first drop in four sessions. Shares of IBM jumped $1.50, to $73.125, their highest level since Oct. 14, 1992. General Electric Corp. added $1.75, to $50.125, and United Technologies rose $1.25, to $64. Together, the three issues added more than 12 points to the benchmark average.
"We're seeing continued movement into big-cap stocks," said Paul Hennessey, head of equity trading at Boston Co. Uneasiness about holding stocks before this week's producer and consumer price index reports has lead investors to buy issues that "they can get into and get out of" quickly.
IBM's shares rose on news the computer company is concluding negotiations to acquire Kalpana Inc., a networking company whose technology will fill a gap in IBM's data-communications product line. Optimism about third-quarter earnings also helped fuel the advance.
"I'm now convinced that Wall Street is right -- that they could earn $4 or more this year and $5 or more next year, in an era when you cannot expect to see a lot of companies go up 20 percent in 1995 over 1994," said Thomas Keresey, chairman of Palm Beach Investment Advisers Inc. He recently added IBM to his $110 million portfolio for the first time since 1990, when IBM sold for between $96 and $122.
Still, traders and investors were hesitant to make big bets on stocks before the release of the two closely watched reports. The Labor Department will issue its producer price index today before the opening of trading, followed by the consumer price index tomorrow. The reports will be scrutinized for signs that inflation is accelerating.
"The market's anticipating the reports with some dread," said Walter Revis, first vice president at Principal Financial Securities in Gurnee, Ill. If the reports show inflation is accelerating, "it's just that much more certain the Fed will tighten in November and next year."
The Fed has raised the federal funds rate, the rate banks charge each other for overnight loans, to 4.75 percent from 3 percent this year in an effort to keep inflation under wraps.
Higher rates are bad for stocks because they encourage people to put their money in fixed-rate investments that are perceived as less risky. They also raise the cost of borrowing, which hurts future corporate profits.
Among broader market indexes, the Standard & Poor's 500 index slid 0.32, to 465.47, after rising 13.43 points, or 3 percent, during the previous three sessions. Gains in the electrical equipment, computer and banking stocks were offset by losses in telephone, beverage and oil issues.
Shares of oil companies fell as the price of U.S. spot crude plunged for the third day and ended at their lowest level in three weeks. The spot price of West Texas Intermediate settled down 51 cents a barrel, at $17.19.
The S&P international oil company index fell 1.24, to 403.61. Exxon Corp. fell 37.5 cents, to $58.625; Chevron Corp. tripped 37.5 cents, to $42.50; and Texaco Inc. lost 25 cents, to $61.875.
The Nasdaq combined composite index gained 1.43, to 767.00, its fourth straight advance. Apple Computer Inc., Microsoft Corp., Tele-Communications Inc. and Snapple Beverage Corp. rose the most.
Declining stocks led advancers 11-to-9 on the New York Stock Exchange, where about 270 million shares traded hands, below Tuesday's 355.5 million shares and the three-month daily average volume of 280 million.
Yesterday, Novell Inc., Wellfleet Communications Inc., Cisco Systems Inc., Apple Computer and Tele-Communications were the most active stocks in U.S. composite trading.
Wellfleet Communications Inc.'s shares slumped $1, to $22.375, after the company reported slightly disappointing revenue for the three months that ended Sept. 30.
Cisco Systems fell $1, to $27.125. The computer network equipment maker was raised to "above average" from "neutral" by an analyst at Merrill Lynch & Co.