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FINANCIAL MARKETS

Fed Sends Dow to New High; Yields Decline

February 01, 1996|From Times Wire Services

The Dow Jones industrial average leaped further into record territory Wednesday as Wall Street celebrated the first cut this year in interest rates by the Federal Reserve Board.

The index gained 14.09 points to end at 5,395.30, the third record high this week and the sixth milestone so far this year.

In the broader market, advancing issues swamped declines 1,560 to 804 on active volume of 472 million shares on the New York Stock Exchange.

The Standard & Poor's composite index of 500 stocks, the NYSE composite, and the Wilshire Associates Equity Index also set new highs.

Meanwhile, the Knight-Ridder Commodity Research Bureau's cash index of 17 commodity futures rose 2.08 to 247.53, its highest level since May 1990.

The Fed announced that it was lowering short-term interest rates by 25 basis points for the second time in two months in a bid to bolster the softening economy and guard against a recession.

The move brought the key federal funds rate that banks charge each other for overnight money to 5.25% from 5.50% and the discount rate, which the Fed charges on its loans to banks, to 5.0% from 5.25%.

News of the long-awaited Fed action sent the blue chips into a tailspin before they rallied sharply as sidelined cash flowed into the market.

"We had a Goldilocks whipsaw. The market looked at everything and wanted everything to be just right," said Arthur Cashin, a managing director of NYSE floor operations for PaineWebber.

He said money managers had been waiting for a pullback as an entry point.

Analysts said the cut in interest rates indicated that the Fed is worried about the economy and more easings are likely in the months ahead.

The yield of the 30-year Treasury bond fell to 6.02% from 6.04% late Tuesday. The bond market had anticipated the Fed move.

Stocks of credit-card issuers and consumer lenders climbed on expectations fewer consumers will default on their debt if rates are declining.

MBNA Corp. vaulted 2 to 40 3/4, Household International Inc. climbed 2 1/4 to 64 7/8, Advanta Corp. spurted 3 3/8 to 44 3/8 and American Express surged 1 1/8 to 46.

Mortgage lenders gained amid optimism that lower rates make buying a new, or larger, homes more affordable. North American Mortgage Co. surged 2 to 26 1/4.

Among market highlights:

* Tivoli Systems jumped 9-9/32 to 47-1/32 after International Business Machines agreed to buy the company for $47.50 a share. IBM rose 1/8 to 108 3/4.

* Helene Curtis slumped 8 1/4 to 58 1/4 as the sale of a large block of its stock touched off panicky selling. Speculators have doubled the value of Curtis' stock recently on rumors that the maker of personal care products may be sold.

* Hasbro lost 2 3/8 to 41 1/2 on views that the toy maker has gained an upper hand in its effort to thwart a merger offer from rival Mattel Inc. Mattel lost 1/4 to 32 1/4.

* Ford Motor was unchanged at 29 5/8 after reporting fourth-quarter earnings that topped analysts' estimates.

* Kimberly Clark was up 1 1/8 to 80 5/8 after reporting fourth-quarter results that met Wall Street's forecasts.

* Novell rose one to 13 1/2. Novell and Corel agreed to a deal in which Corel will buy the PerfectOffice application suite, WordPerfect word processor and QuattroPro spreadsheet.

*

The CRB commodity price index, often cited as an inflation barometer, soared to a six-year high Wednesday, driven higher by cold weather rallies in coffee, orange juice and energy contracts.

The Knight-Ridder Commodity Research Bureau's cash index of 17 commodity futures rose 2.08 to 247.53, its highest level since May 1990.

Helping lift the index recently were higher gold and grain prices. But analysts were reluctant to ascribe too much meaning to the general rise in raw commodities prices, with overall inflation in the economy remaining fairly tame.

"I don't think inflation is the driving force," said John Murphy of JJM Technical Advisors. "I think it's more of an asset reallocation."

The Federal Reserve apparently took the same view when it decided to cut interest rates.

Murphy added, however, that the decline in global interest rates was reflected in recent rallies in the interest rate-sensitive lumber and gold markets.

Coffee and orange juice prices made the biggest leaps Wednesday, based on concerns that freezing weather will damage Mexico's important coffee crop and Florida's orange groves.

Coffee traders said there was a threat of freezing weather early next week in the Mexican states of Veracruz and Puebla, which produce about one-third of the Mexico's 4 million 132-pound bags, about 4 percent of global output.

March coffee climbed 9.05 cents to 128.60, after earlier reaching a four-month high of 131.50 cents at the Coffee, Sugar and Cocoa Exchange.

Mexico's coffee is more important this year because top producer Brazil has a smaller crop due to frosts and a drought in the latter half of 1995.

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