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Stocks Hurt by Rising Rates, Tobacco Slump

August 22, 1996|From Times Staff and Wire Reports

Rising bond yields and another slump in tobacco shares left Wall Street mostly lower Wednesday, although trading remained subdued with many investors on vacation.

The Dow Jones industrial average fell 31.44 points to 5,689.82, recovering over the final two hours from a 48-point slide. More than a third of the Dow's drop came from Philip Morris, which was dragged lower by the latest storm clouds facing the tobacco industry.

Broader market measures also trimmed their losses toward the close, and a late rally in technology shares pulled the Nasdaq composite index of mostly smaller stocks up 2.17 points to 1,126.84.

Still, losers edged winners on both Nasdaq and the New York Stock Exchange.

Stocks started the day lower as bond traders took profits, one day after the Federal Reserve Board, in a policy meeting, opted to leave short-term interest rates unchanged.

The Fed's decision was expected and hadn't affected bonds on Tuesday. But on Wednesday, sellers drove the yield on the bellwether 30-year Treasury bond to 6.83% from 6.79% the previous day. Wednesday's yield was the highest since Aug. 1.

There was little news to explain the weakness in Treasuries other than profit taking on the market's recent strength and speculation about the impact of a Bob Dole victory in November, said Eric Miller, chief strategist at Donaldson, Lufkin & Jenrette Securities in San Francisco.

"A few weeks ago, so few people thought the Republicans had a chance that it didn't seem important. But with the events of the last week or two, that's changed a bit," Miller said, referring to Dole's rise in the polls following last week's Republican National Convention.

"It creates nervousness because of Dole's proposed tax cuts and a lack of credibility that spending cuts would be enacted simultaneously," Miller said. A rising federal deficit could pressure bond prices with a flood of new government debt securities.

In the stock market, meanwhile, the major problem currently is tobacco shares.

Just as a widely watched tobacco liability trial in Indianapolis was drawing to a close, three more states filed lawsuits Tuesday and Wednesday seeking billions of dollars in damages from cigarette makers to pay for the cost of treating smoking-related illnesses.

Then, late Tuesday, came news that the Clinton administration's decision on whether or not to allow the Food and Drug Administration to regulate tobacco as a drug could come as early as Friday.

Fearful investors drove Philip Morris shares down 3 7/8 to 87 5/8, RJR Nabisco down 1 3/8 to 25 1/4 and Loews down 1 1/4 to 76 5/8.

For the broader market, with few major economic reports on the horizon and third-quarter earnings considerations more than a month away, many analysts expect the market to drift until after Labor Day.

Among Wednesday's highlights:

* Newbridge Networks helped boost the tech sector, jumping 9 3/8 to 59 3/8 after the maker of computer networking equipment laid to rest lingering investor fears with a solid first-quarter earnings report.

Other tech shares gaining included PairGain Technologies, up 4 1/8 to 61; Cisco Systems, up 1 1/4 to 56 1/4; and Ascend Communications, up 2 to 45 1/2.

But Oracle lost 1 1/8 to 37 7/8. Goldman Sachs downgraded the stock after its recent run-up.

* Among Southland issues, Jenny Craig slumped 5 5/8 to 11 1/2. The company late Tuesday blamed new weight-loss drugs for recent soft demand for its weight-loss programs.

On the upside, retailer Wet Seal soared 4 5/8 to 34 3/8 on a strong earnings report.

* Rexene fell 2 1/4 to 10 1/2 after privately held Huntsman Corp. said late Tuesday that it was withdrawing its $460-million bid for the chemical firm.

In foreign trading, Mexico's Bolsa index advanced 10.58 points to a record 3,412.37 despite a delayed opening caused by protesters opposed to the government's education policies.

In commodities trading, crude oil prices moved lower after government and industry reports showed crude inventories increased this past week.

Late Tuesday, the American Petroleum Institute reported U.S. crude oil supplies increased 296,000 barrels during the week ended Aug. 16. Traders had expected a decrease. On Wednesday, the government's Energy Information Administration report showed an 1.8-million-barrel increase in crude inventories for the week.

Both increases in inventories were attributed to a jump in imports. The API report showed daily imports averaged nearly 8.78 million barrels, compared with 8.18 million the previous week.

Nymex crude oil for October delivery closed down 39 cents at $21.72 per barrel. September heating oil closed down 0.69 cent at 60.98 cents per gallon, and September gasoline was down 0.89 cent at 63.12 cents per gallon.

Also, coffee prices at the New York Coffee, Sugar and Cocoa Exchange rose in reaction to exchange data that showed a tight supply of coffee registered for delivery against the September contract.

Delivery of physical coffee against the September contract begins Thursday, and traders noted that September's open interest was still relatively high, the equivalent of 839,000 bags as of Aug. 20, compared with 34,516 bags available for delivery.

Market Roundup, D6

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