Jitters over Mexico situation send Dow down 25.91

January 31, 1995|By Bloomberg Business News

NEW YORK -- U.S. stocks posted their first broad decline in six days yesterday amid concern that U.S. assets and corporate profits will suffer if Congress doesn't approve a Mexican loan-guarantee package soon.

Shares of aluminum, chemical, paper and steel companies led the retreat as Mexico's predicament compounded concern that rising U.S. interest rates will slow the domestic economy. Many analysts expect the Federal Reserve's policy panel to raise rates when it meets today and tomorrow.

Doubts about the Mexican aid plan's passage hurt the stock market because Mexico is the U.S.'s third-largest trading partner. It also was a magnet for U.S. investment in recent years, and many people view the plan as crucial to helping resolve the currency crisis that erupted on Dec. 20.

"The Mexican plan is looking less likely to go through the House and Senate, and that's hurt U.S. stocks," said Edward Laux, senior managing director in equity trading at Chicago Corp.

The Dow Jones industrial average fell 25.91, to 3,832.08, extending Friday's 12.45-point loss. Declines in Aluminum Co. of America, International Paper Co. and DuPont Co. outweighed gains in Procter & Gamble Co., Walt Disney Co., and General Electric Co.

Among broader indexes, the Standard & Poor's 500 index lost 1.88, to 468.51, almost surrendering Friday's 2.07-point advance. Chemical, oil and semiconductor shares declined, while health-care, drug, household-product and beverage shares advanced.

The Nasdaq composite index slumped 7.08, to 751.83, after rising 1.35 on Friday. Microsoft Corp., Intel Corp. and Cisco Systems Inc. paced the decline.

The Russell 2000 index fell 1.91, to 246.56; the American Stock Exchange market value index shed 3.21, to 433.54; and the Wilshire 5000 index dropped 18.84, to 4,610.80.

Almost twice as many stocks declined as gained on the New York Stock Exchange. Trading was active, with about 319 million shares changing hands on the Big Board.

Telefonos de Mexico's American depositary receipts tumbled $2, to $30.75, its lowest price since August 1991, as Mexican stocks tumbled and the currency plunged to a record low of 6.4250 pesos to the dollar, before closing stronger at 6.350. A falling peso reduces Mexican companies' profits in dollar terms.

Telmex was the most actively traded stock in the United States, followed by Compania de Telefonos de Chile's ADRs. CTC's ADRs, each representing 17 shares, sank $4.125, to $69.

U.S. lenders to Mexico were also hurt, with Citicorp down 62.5 cents, at $40.625.

At the end of 1994, foreigners owned about $50.4 billion worth of Mexican shares, or about 26 percent of the total market. That was up from just $800 million, or 3 percent of the total, in 1989.

Gloom about both Mexico's economy and the effect of rising U.S. interest rates on domestic growth triggered declines in shares of manufacturing companies such as Alcoa and International Paper Co.

Within the Dow industrials, Alcoa plummeted $3.50, to $77.50; International Paper fell $2.375, to $70.875; and DuPont lost $1.375, to $53.125. DuPont may face more lawsuits stemming from its Benlate fungicide, the Wall Street Journal reported.

These so-called cyclical companies, whose profits rise and fall along with the economy, were the market's biggest decliners for a third consecutive day amid expectations that the Federal Open Market Committee will raise the target rate on overnight bank loans, or federal funds, to 6 percent from 5.5 percent, this week.

The Dow Jones transportation average tumbled 20.26, to 1,503.24, as CSX Corp. fell $2.50, to $71.

Among other aluminum producers, Reynolds Metals Co. fell $1.75, to $49, and Alcan Aluminum Ltd. eased 87.5 cents, to $23.75.

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