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Budget Conferees Aim at 2-Year Cuts : Dow Rebounds by 52 Points in Jittery Trading

October 28, 1987|DEBRA WHITEFIELD | Times Staff Writer

NEW YORK — The stock market staged a tenuous rally Tuesday. Buoyed by overnight gains in Japan and Hong Kong, stock prices rose sharply at the opening but then sputtered as jittery investors lost their nerve and used the rebound as a chance to get out of the market.

After springing to an 85-point gain in the first 30 minutes of trading, the closely watched Dow Jones industrial average finished the truncated session with a 52.56-point gain in brisk trading to recover about a third of Monday's 156-point loss. The index closed at 1,846.49.

But the Dow's strong showing--its eighth-largest point gain for a single day ever--was largely the doing of a last-minute spree by buyers of blue-chip stocks, most of which finished the day higher. Broader market gauges turned in mixed performances.

'Not Bottomed Yet'

"There is more trouble ahead," predicted Alfred E. Goldman, a market strategist with the A. G. Edwards investment firm in St. Louis. "To jump out so strongly and then be so complacent is a sign of a market that has not bottomed yet."

This was not the only thing troubling market analysts and traders Tuesday.

The dollar deteriorated to lows not seen since the early 1980s against the West German mark and the British pound, which some analysts fear will set the stage for another round of losses in overseas stock markets today. The stock market's gains also came at the expense of bond prices, which gave back the sharp gains they registered on Monday, when another wave of investors fled stocks.

In addition, investors virtually ignored what should have been a psychological lift: News of a $1-billion stock buyback plan by International Business Machines Corp. IBM's stock price rose a strong $6 per share Tuesday to close at $118, but the news barely budged the Dow, and in fact the indicator began a steady retreat shortly after the plan was announced.

Investors also shrugged off a statement from President Reagan issued by the White House shortly before noon in which, departing from his earlier assertions that the market turmoil was merely a correction, he warned of "potential economic dangers" on the horizon.

Wall Street's reaction? "Absolutely none," said Ernie Rudnet, manager of block trading at Mabon Nugent & Co. in New York.

'Out of Control Now'

"It's nice to see that the reality phase has finally hit the White House," said Michael Metz, a market strategist for Oppenheimer & Co. "But as you can see from the market's response, it is too late; the market is out of control now."

Although Goldman and other market analysts were encouraged by the "placid tone" that returned to Wall Street on Tuesday for the first time in more than a week, many agreed that the market has now taken on a life of its own.

"What is moving the markets now are the markets themselves," observed Hugh Johnson, chief investment officer for the investment firm First Albany. "Some stocks look pretty enticing and lots of people are starting to look at individual stocks, but they aren't buying because the behavior of the markets themselves is so demoralizing."

Johnson likens this erratic behavior to "a dog chasing its tail."

Pressure on Japanese

"If one (market) falters, the rest of them falter. But by the same token, if investors awaken to find the least bit of reason to believe that markets around the world are going to stabilize, they're going to pour in from the sidelines. That's a lot of pressure on the Japanese market."

Such was the case Tuesday. Americans awoke to news that the Japanese and Hong Kong stock markets bounced back from Black Monday batterings of their own. Tokyo's 225-share Nikkei stock average recorded its third-largest single-day gain ever, regaining 632.40 of the 1,096.22 points that it lost Monday. And the Hong Kong market's prime gauge of blue chips--the Hang Seng index--rose nearly 7% Tuesday after suffering its worst one-day decline ever, a 33% fall, on Monday.

World markets were off and running.

London's stock market had recovered half of its Monday losses within a few minutes of Tuesday's opening. And Wall Street primed itself for a spirited rally.

Led by Foreign Buyers

For an hour, no one was disappointed. Foreign buyers led the buying spree with an early rush of demands to buy U.S. stocks and withdraw earlier sell orders that sent both the familiar Dow and some broader market measures soaring.

"It was shaping up to be the first broad-based rebound since last Wednesday," said Rudnet of Mabon Nugent. "There was even some bottom fishing, mostly by cash-rich banks and insurance companies."

But by 11 a.m., the jitters had returned to Wall Street. Buying began to dry up and sellers returned to the market. Stocks in London, taking a cue from Wall Street, also turned lower in a day of volatile trading and finished the day up but well off their peaks.

11th-Hour Buying Binge

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