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Dow Inches Up to Another Record on Eve of Fed Meeting

September 24, 1996|From Times Staff and Wire Reports

The Dow Jones industrial average snapped back from a sharp sell-off early Monday to close in record territory--practically daring the Federal Reserve Board to raise interest rates today, some analysts said.

But the broad market was modestly lower ahead of the Fed's meeting, as many investors kept to the sidelines because of uncertainty over the central bank's intentions.

On Wall Street, stocks started the day in a funk, with the Dow off more than 50 points early on. But sellers failed to keep control, and computer-generated buying in the afternoon helped push the Dow up 6.28 points to a record 5,894.74, eclipsing the previous high of 5,889.20 set on Sept. 16.

Most stocks, however, didn't follow the Dow: Every other major index closed slightly lower, as losers topped winners by 14 to 9 on the New York Stock Exchange.

Trading volume was thin, a function both of anxiety ahead of the Fed's meeting and the absence of some market players because of the Yom Kippur Jewish holiday.

In the bond market, yields rose early in the day, then closed mixed. The 30-year Treasury bond eased to 7.02% from 7.04% Friday.

David Bostian, investment strategist at Herzog, Heine, Geduld in New York, said he doesn't believe the recent economic data justify a credit-tightening move by the Fed, but that it was "too close to call" what the central bank will do at its meeting today in Washington.

Some economists argue that an acceleration in wage growth this year portends higher inflation down the road, and that the Fed should raise short-term interest rates somewhat now--to slow the economy--rather than risk having to raise rates sharply later, if higher inflation becomes ingrained.

At most, experts think the Fed could raise its benchmark short-term interest rate, the federal funds rate, from 5.25% to 5.5% today. "My vote is yes, they're going to do it," said Eric Cheung, analyst at Wilmington Trust Corp.

How markets will react--whatever the Fed's decision--is a mystery, many experts say. Higher rates could upset the bond market initially, but investors also could be drawn to long-term bonds if they feel that inflation won't become a problem.

The Fed meeting today will coincide with a Treasury auction of 2-year notes. A 5-year note auction is set for Wednesday.

For stocks, higher rates also could be upsetting. But historically the stock market has often failed to be shaken by initial credit-tightening moves by the Fed.

Among Monday's highlights:

* The Dow got a lift from AlliedSignal, up 1 1/4 to 64; Eastman Kodak, up 1 1/4 to 76 3/8; Walt Disney, up 1/2 to 63 5/8; and IBM, up 1 1/4 to 124 1/4.

* Despite IBM's gain, many tech shares closed down after last week's surge. Intel fell 1 5/8 to 95 3/4, Sun Microsystems lost 1 3/8 to 60 3/8, Texas Instruments slid 1 3/8 to 51 3/4 and Oracle dropped 1 5/8 to 42 7/8.

* Many bank stocks rallied, suggesting that buyers don't believe interest rates are headed up. BankAmerica added 1 1/8 to 82 1/8 and First Union was up 1 1/2 to 66 1/2.

* Trendy clothing maker Mossimo slumped 7 to 34 after warning of weak near-term earnings. That may have sparked selling among teen-apparel retailers. Pacific Sunwear lost 1 5/16 to 29 13/16 and Wet Seal sank 1 3/8 to 34 1/2.

* Templeton Russia Fund lost 1 1/4 to 21 1/2. Russian President Boris Yeltsin's doctors have recommended postponing heart surgery for Yeltsin for two months to let him get stronger before they operate.

* Exide Electronics soared 3 1/2 to 12 5/8 on news that it won an Air Force contract with a potential value of $625 million to make power supply systems.

The Tokyo stock market was closed for a holiday. London shares fell on concerns over what the U.S. Fed might do.

Market Roundup, D10

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