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FINANCIAL MARKETS

Dow Up 8 but Caution Reigns Ahead of Data

September 05, 1996|From Times Staff and Wire Reports

Stocks struggled to small gains Wednesday despite another rise in long-term bond yields.

But trading remained cautious in advance of the government's Friday report on August employment trends, which may determine whether the Federal Reserve Board tightens credit soon.

Meanwhile, oil prices slipped but held most of the ground gained Tuesday, after the U.S. launched missiles against Iraq.

On Wall Street, the Dow Jones industrial average traded in a narrow, indecisive range, closing up 8.51 points at 5,656.90.

Most broad-market indexes turned higher late in the session, which was rather uneventful aside from an agreement by Staples to acquire office supply rival Office Depot for about $3.5 billion.

Stocks were pressured throughout the session by a weak bond market.

Yields had slid Tuesday after surging in recent weeks on worries about the economy's apparently strong pace of expansion. But on Wednesday, sellers struck again, pushing the yield on the bellwether 30-year Treasury bond to 7.09% from 7.05% on Tuesday.

Bond traders said many investors are unwilling to take new positions ahead of Friday's employment report. "We're on a knife's edge," said Peter Anderson, chief investment officer at the IDS Advisory Group in Minneapolis.

If the employment data are stronger than expected, bond yields could shoot higher on the assumption that the Fed will feel it has no choice but to boost short-term interest rates for the first time since early 1995.

The central bank has warned that the economy's growth in recent months could force it to tighten credit in order to dampen activity and restrain inflation.

Yet there is little agreement among analysts as to whether the economy's pace really justifies higher interest rates. On Wednesday, for example, the government reported that construction spending slumped in July.

Key in Friday's employment report will be data showing how quickly wages are growing. "If the wage number indicates an acceleration in wage pressures, the bond market will react negatively and so will the stock market," said Anderson, because that will be a potential sign of higher inflation. The Fed thus could be pressured to raise rates to counter that trend.

On Wednesday, however, the stock market showed little overt fear of the Fed. Rising stocks outnumbered losers by 13 to 9 on the Big Board in moderate trading.

Most key indexes rose with the Dow. The Nasdaq composite index of mostly smaller stocks added 1.53 points to 1,143.82.

In oil futures trading, the October contract on the New York Merc slipped 16 cents to $23.24 after jumping $1.15 on Tuesday, in the wake of the U.S. attack on Iraq.

Iraq's troop withdrawal from a disputed area did little to dampen oil traders' expectations of stable or higher crude prices going forward.

Among Wednesday's highlights:

* Oil shares were marginally lower after soaring Tuesday. Chevron eased 1/4 to 59 5/8, Amoco fell 7/8 to 68 7/8 and Unocal was unchanged at 35 1/8.

* Office Depot rocketed 4 37/64 to 20 29/64 after Staples agreed to buy it. Staples lost 3/4 to 18 3/4. Rival firm OfficeMax was off 5/8 to 13 1/8 on competitive concerns.

* Many health maintenance organization stocks gained after Aetna told analysts that it expects price increases for its HMO plans to outpace general medical inflation in 1997, boosting profit. Aetna jumped 2 1/8 to 67 1/8, Oxford Health gained 1 3/8 to 45 1/8 and Foundation Health leaped 2 1/8 to 31 7/8.

* American Eagle Outfitters rose 4 11/16 at 25 15/16, up 22%, after the retailer of casual clothing reported strong earnings.

Retail stocks in general were higher. Mercantile Stores gained 1 1/4 to 54 3/8, J.C. Penney jumped 1 7/8 to 55 1/2 and Wet Seal rose 1 1/8 to 37 1/4.

* Kellogg fell 3 3/8 to 66 in after-hours trading after the cereal giant warned late in the day that current quarter earnings will be down 20% from a year ago. It cited the effect of cereal price wars.

* Among Southland issues, music services provider DMX rose 3/16 to 1 3/8 after trading as high as 1 3/4. Tele-Communications Inc., which owns 45% of DMX, proposed that DMX be acquired by a new corporation to be formed by TCI. TCI said shareholders of DMX would get Class A stock representing about 19% of the new firm.

Market Roundup, D6

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