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FINANCIAL MARKETS : Dow Falls 45 on New Inflation Fears

October 05, 1994|From Times Staff and Wire Services

Stocks were hammered in a broad-based selloff Tuesday as new signs of economic strength--and fears of higher inflation--pushed bond yields up again.

The Dow industrial average tumbled 45.76 points to 3,801.13, its lowest close since Aug. 23. Worse, the broad market was slammed much harder than the Dow.

Losers swamped winners by 17 to 5 on the New York Stock Exchange, and most stock indexes suffered bigger declines than the Dow's 1.2% loss. The Standard & Poor's 500, for example, sank 1.6%; the Nasdaq composite of mostly smaller stocks plunged 1.8%.

Trading was heavy at 336 million shares on the NYSE, another sign of investors' discontent.

Analysts said the market opened higher, but that sentiment grew increasingly sour as the day wore on, and selling ballooned.

The government's report Tuesday that its key economic forecasting gauge rose in August at the fastest rate in five months set the tone, fueling new concerns about higher interest rates.

Reports of recent strong auto and retail store sales released late in the day added to the picture of a surging economy, further spooking investors, traders said.

Bond yields, which have been rising sharply since mid-September, edged up again on Tuesday. The 30-year Treasury bond yield reached a new 27-month high of 7.88%, up from 7.85% on Monday.

Some economists now believe that the Federal Reserve Board may have to raise short-term interest rates again, perhaps as early as Friday, to cool the economy. The government will report September employment data on Friday, and faster-than-expected job growth could send inflation fears rocketing unless the Fed acts, analysts say.

But some experts said the stock market was hurt by more than interest rate concerns on Tuesday. In the afternoon, Wall Street was hit by reports, later denied, that House Speaker Thomas Foley supported putting off a vote to implement the General Agreement on Tariffs and Trade, or GATT--the most important new world trade treaty in decades.

A U.S. delay on GATT could have negative ramifications for markets worldwide, analysts say, because the assumption of freer trade has been one of the key pillars supporting stock prices.

Among Tuesday's highlights:

* Industrial shares leading the Dow lower included Alcoa, off 1 3/8 to 84 1/2; GM, off 1 1/8 to 45 1/8; International Paper, down 1 1/4 to 77 7/8; and Union Carbide, which slumped 1 3/8 to 32 1/2.

Investors have pushed many industrial issues higher in recent months, but the market may now fear that another Fed credit-tightening move will threaten to tip the economy into recession sometime in 1995, analysts say.

Other industrial stocks losing ground included Dow Chemical, down 3 1/8 to 74 1/8; Georgia-Pacific, down 1 1/4 to 75 5/8; and Nucor, off 6 to 63 3/4.

* Many technology stocks continued their recent selloff. Cyrix tumbled 4 3/8 to 38, Intel slumped 2 1/4 to 58, Advanced Micro Devices sank 1 3/8 to 25 1/8 and Hewlett-Packard dropped 2 1/8 to 84 1/2.

* Some interest-rate-sensitive stocks dropped sharply. First Chicago sank 2 to 43 5/8, Travelers lost 1 1/8 to 31 1/2 and Golden West Financial gave up 1 1/8 to 38 3/8.

* Among Southland issues, L.A. Gear fell 3/4 to 7 after the shoe maker said third-quarter earnings declined in part because of excess inventory.

Also, pipe-maker Ameron fell 1 1/8 to 32 3/8 after slumping 2 1/2 on Monday. The company reported higher quarterly earnings on Tuesday, but one brokerage reduced its earnings estimates, which Ameron said were too high all along.

* Among the day's few big gainers was drug firm Marion Merrell Dow, up 2 1/4 to 26 on renewed takeover speculation.

London's FTSE 100 index rebounded 18.3 points to 3,001.8, but Frankfurt's DAX 30 lost 16.8 points to 1,994.95. In Tokyo, the Nikkei average lost 81.42 points to 19,568.61. Mexico City's Bolsa index eased 15.99 points to 2,670.02.

Interest Rates

30-year T-Bond: 7.88%

1-year T-Bill: 6.01%

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