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Stocks Finish Mixed as Rate Worries Grow

May 07, 1996|From Times Staff and Wire Reports

Some late bargain hunting helped stocks recover part of their losses Monday, but the broad market ended mostly lower as concerns deepened about the recent jump in interest rates.

Treasury bond yields, however, fell for the first time in a week in light trading dominated by Wall Street speculators buying bonds cheapened after a two-day sell-off.

The Dow Jones industrial average eased 13.72 points to 5,464.31, after being down as much as 55 points earlier in the day. Trading volume was slow.

The blue-chip Dow index--which lost about 90 points last week as new signs of a rebounding economy drove interest rates up--had by Monday fallen nearly 4% from its all-time high set just over a month ago.

Most other market indexes also closed slightly lower Monday. But in keeping with the recent trend, indexes dominated by smaller, more speculative stocks rose on the day, bucking the blue-chip decline.

The Nasdaq composite index of mostly smaller issues gained 1.71 points to 1,186.31, and the Russell 2,000 index eked out a tiny rise.

Analysts were sounding increasingly skeptical about the bull market's staying power, given interest rates' current levels.

Yields on long-term Treasury bonds jumped above the 7% level last week for the first time in a year, as economic data pointed to surprising strength. That is sparking fear that the Federal Reserve Board will begin to tighten credit again--or that higher rates will on their own depress the economy and thus corporate profits.

"With interest rates above the 7% level, the impact is sufficiently negative to slow certain areas of the economy down," said Ned Riley, chief investment officer at Bank of Boston. "The slow growth will eventually impact equities and people will gravitate to bonds."

Notably, investment firms Smith Barney and Wheat First Butcher Singer on Monday called for their clients to cut back on their stock holdings because of rising interest rates. That may have helped steer some investors into bonds.

The 30-year T-bond yield dropped to 7.05% on Monday from 7.11% on Friday, and yields on intermediate-term securities also closed slightly lower.

But bond trading volume was extremely thin, with markets in Tokyo and London closed for holidays and some U.S. investors taking a breather. Some analysts said buying was mostly by speculators.

Among Monday's highlights:

* Many technology stocks continued to attract buyers hunting for companies with healthy profit prospects. Hewlett-Packard gained 4 to 106 1/2, Iomega shot up 6 to 66, Netscape Communications rose 3 to 59 1/2 and Bay Networks added 2 to 34 3/4.

Also, America Online jumped 5 1/4 to 67 7/8 after a report appeared in Japan saying the company is teaming up with Mitsui to enter the Japanese Internet market. AOL declined comment. Mitsui executives in the United States could not be reached.

* Apple Computer gained 1 3/4 at 25 5/8 as IBM confirmed an arrangement to use and resell the software that runs Apple's Macintosh computer. IBM said it will not immediately build Macs itself. IBM lost 1 1/8 to 107.

* Zenith Electronics rocketed 7 1/8 to 22 7/8, continuing a spectacular run-up that began last week, after the company announced a new system that would allow cable TV companies to offer Internet access to subscribers.

* On New York's Commodity Exchange, June gold futures closed up $1.60 at $395.70 an ounce amid renewed inflation concerns. That helped gold mining stocks rally. Battle Mountain rose 1/2 to 9 1/8, TVX Gold gained 3/4 to 9 1/8, Placer Dome was up 7/8 to 28 1/2, Newmont Mining jumped 2 to 58 1/2 and Newmont Gold added 2 1/4 to 58 7/8.

* On the downside, some energy issues continued to be hit by profit taking. Unocal fell 1 3/4 to 29 7/8, Mobil lost 7/8 to 111 3/4 and Texaco dropped 1 3/8 to 80 1/8.

* Comparator Systems shot up 23/32 to 1 in more frenzied Nasdaq trading, with 151 million of the company's 610 million shares changing hands. The tiny Newport Beach-based company announced plans to unveil a line of identity verification systems next week. The systems may be used for applications such as passports, driver's licenses, credit card authorizations, check cashing and automated teller machines.

In commodities trading, corn prices rose on fears that wet, cold weather would postpone planting of this year's crop. Wheat, oil and copper prices fell.

At the Chicago Board of Trade, July corn closed 1 3/4 cents per bushel higher at $4.54 3/4. September corn, which will see some deliveries from the new crop to be harvested this fall, rose 8 3/4 cents to $3.79 1/2.

Market Roundup, D8

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