Stocks close mixed on prospect of rate increase

January 25, 1995|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed yesterday as the prospect of the Federal Reserve raising interest rates next week overshadowed signs of stability in overseas stock markets.

Stocks were higher most of the day, buoyed by rallies in shares of Walt Disney Co. and Intel Corp., as well as strong fourth-quarter earnings from AT&T Corp., American Home Products Corp., Nynex Corp. and Monsanto Co.

On Tuesday, though, the Fed's policy arm is widely expected to raise interest rates for the first time in 1995 and the seventh time in a year, crimping future profit growth and making fixed-income investments more attractive.

The meeting begins Jan. 31, the one-year anniversary of the Dow Jones industrial average's record close.

The average closed down 4.71, at 3,862.70, yesterday, after rising as much as 9.08 points. It's now about 2.9 percent below the all-time closing high of 3,978.36.

"We had a big swing yesterday because of Japan, and now people are waiting to see what the Fed does," said Richard Meyer, head of institutional trading at Ladenburg, Thalmann & Co. "That will determine which way the market wavers."

The Standard & Poor's 500 index closed up 0.04, at 465.86, after rising as much as 0.98. The Nasdaq composite index rose 3.69, to 763.20. Four stocks rose for every three that fell on the New York Stock Exchange.

Trading was active as people awaited last night's State of the Union speech, as President Clinton was expected to propose middle-class tax cuts and an increase in the minimum wage. About 325 million shares changed hands on the Big Board.

The U.S. advance followed a recovery overseas. Japan's Nikkei 225 average rose 275.24, to 18,060.73, overnight, recovering 1.6 percent of the previous day's 5.6 percent plunge. The market was boosted by hopes that the Kobe earthquake's reconstruction costs won't hurt Japan's economic recovery as much as first feared. Britain's FT-SE 100 Index rose 0.5 percent, recouping a third of Monday's 1.4 percent slump.

The Dow Jones transportation average fell 10.24, to 1,517.91, as UAL Corp. shares tumbled $4.125, to $95.50. The holding company for United Airlines posted a fourth-quarter loss of 98 cents a share.

The Russell 2000 index rose 0.87, to 248.94; the American Stock Exchange market value index gained 0.49, to 437.40; and the Wilshire 5000 index advanced 8.47, to 4,602.44.

Stock prices aren't likely to rise much before Tuesday's meeting of the Federal Open Market Committee, traders said.

Many economists expect the Fed panel to raise the target rate on federal funds, or overnight bank loans, to 6 percent from 5.5 percent, to slow the economy and inflation.

Stocks also may be capped by the prospect of billions of dollars of Treasury securities coming to market during the next few weeks. During the next three weeks, the Treasury will sell about $11 billion in 30-year bonds and $29.25 billion of three-and 10-year notes. The Treasury sold $17.26 billion of two-year notes yesterday and will sell five-year notes today.

"I think bonds are going to give stocks a pretty good run this year," said John Chadwick, a money manager at Bessemer Trust Co. N.A., which invests about $10 billion.

Aluminum Co. of America and Exxon Corp. led the decline in the Dow industrials, offsetting rallies in Eastman Kodak Co. and Disney shares.

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