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FINANCIAL MARKETS : Dow Falls in Slow Trading; Bolsa Rebounds

November 12, 1994|From Times Staff and Wire Services

U.S. stocks lost more ground Friday in action slowed by a bond market holiday and by fears of another interest rate increase by the Federal Reserve Board early next week.

In Mexico City, the Bolsa stock index recovered somewhat from a steep plunge Thursday on concerns about bellwether issue Telmex.

On Wall Street, the Dow industrial average dropped 20.52 points to 3,801.47, for a full-week loss of 6.05 points amid volatile election-related trading.

In the broad market, losers topped winners by 15 to 6 on the New York Stock Exchange on Friday, though volume was light at 219 million shares. The Nasdaq market of mostly smaller stocks showed better breadth, with losers edging winners by just 14 to 13.

Analysts said many stock traders stayed away with the government bond market closed in observance of Veterans Day. But bond futures trading went on Friday, and renewed selling in that market--signaling still-higher bond yields--helped depress stocks.

The 30-year Treasury bond yield had closed at 8.15% on Thursday, hovering near three-year highs and suggesting that investors see no signs of an economic slowdown that could allow rates to ease.

The problem for both stock and bond markets now is in guessing how much higher rates may have to go to cool the economy. The Fed is scheduled to meet on Tuesday and is expected to raise short-term rates for the sixth time this year, by at least a half-point and perhaps by a full percentage point.

Richard Hoey, Dreyfus Corp.'s chief economist, said he believes that stock investors "assume it's going to be (a half-point)" on Tuesday, and thus that the market has already priced that into stocks.

But "the issue is, is there more after that, and how much more?" Hoey asked. With the economy expanding briskly, many experts are predicting that the Fed may have to raise rates into 1995.

That is leaving many stock investors increasingly discouraged, said Dudley Eppel, trader at Donaldson, Lufkin & Jenrette Securities. "If bond rates go higher, sooner or later people are going to have to sell stocks and buy bonds," he said, because the returns on bonds will simply become too attractive to ignore.

Analysts noted that the stock market attempted to rally sharply early Wednesday, after the Republicans were swept to power in Congress, and again early Thursday. But both of those rallies failed in the face of continued high bond yields, traders said.

Among Friday's highlights:

* Biotech stocks were in the spotlight as Chiron soared 11 3/4 to 71 1/2 on new takeover rumors. Investors also bid up other major biotech names, including Biogen, up 1 1/8 to 39 7/8; Amgen, up 1 1/2 to 58; Genentech, up 1 to 47 1/2; and Genzyme, up 3/4 to 30 1/2.

* Some technology issues were active for a second day. Computer networker Cisco Systems jumped 2 3/8 to 33 after reporting strong quarterly earnings at the top end of Wall Street expectations.

But Microsoft shed 1 7/16 to 62 1/4 after Goldman Sachs shaved its fiscal 1995 earnings per-share estimate by 10 cents to $2.20, citing a delay in the new Windows 95 software product.

* Among Southland issues, builder Inco Homes sank 1/2 to 1 1/2 after announcing that it is in violation of certain financial covenants with its lenders.

Elsewhere, takeover rumors boosted Spelling Entertainment 1 to 11 3/4. Spelling is majority-owned by Blockbuster Entertainment, now a part of Viacom. Viacom chief Sumner Redstone said Friday that the firm is considering buying the rest of Spelling.

In the Mexican market, the Bolsa index rebounded 34.67 points to 2,526.99 after falling 126 points Thursday, when Telmex shares plummeted on concerns about new competition from a future alliance between AT&T and Grupo Alfa.

Telmex's NYSE-traded shares, down 4 3/4 on Thursday, rose 2 1/4 to 53 1/2 after Baring Securities upgraded the stock to buy from hold.

In other foreign markets, Frankfurt's DAX index eased 4.05 points to 2,078.35, while London's FTSE 100 index slid 27.6 points to 3,075.9.

In Tokyo, the Nikkei 225 index added 19.51 points to 19,284.36, though for the week it declined 527.2 points on renewed concerns about the strong yen.

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