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FINANCIAL MARKETS

Dow Declines on Dollar Worries; T-Bill Rates Up Ahead of Fed

March 22, 1997|From Times Staff and Wire Reports

Stocks closed mixed Friday, with some blue chips hurt by worries about the strong dollar after an ominous warning from Eastman Kodak.

Meanwhile, short-term Treasury bill rates continued to rise, indicating traders are assuming that an official rate hike Tuesday by the Federal Reserve Board is certain.

On Wall Street, the Dow Jones industrials slipped 15.49 points to 6,804.79, a small loss considering that three of the Dow's component stocks--Kodak, IBM and Philip Morris--each sank more than 3%.

Kodak, in fact, slumped 10.5%, down 9 1/4 to 79 after its terse statement that overall sales were flat in January and February.

The company pinned part of the blame on the strong dollar, which reduces the value of foreign sales when translated back into dollars.

Although the dollar weakened Friday against key currencies, it is far above its December levels.

Concerns about the dollar's potential impact on multinational companies' first-quarter results also hurt IBM, which dropped 4 3/8 to 132 1/2. Brokerages Dean Witter and Morgan Stanley trimmed earnings estimates for IBM on Friday.

Philip Morris, meanwhile, sank 4 3/8 to 111 1/2 on rising worries about the ultimate cost of tobacco-liability lawsuits.

But the declines in those blue chips were nearly offset by advances in others, as investors hunted for stocks that may hold up even if the Fed, in fact, tightens credit next week. Oil, retail, bank and food stocks were strong.

Smaller stocks, however, weakened again, on balance. The Russell 2,000 index of smaller issues lost 0.58 point to 351.73, bringing its loss for the week to 2.6%.

The Dow, in contrast, lost 1.9% for the week.

Beset by fears about interest rates, a tight labor market, a strong dollar and a general sense that share prices have become overvalued, Wall Street has been in a broad retreat in recent weeks.

The Russell index now has fallen 5.1% from its record high. The Dow is down 4% from its record. The Nasdaq composite, heavy with tech issues, is off 9.6% from its record, after losing 3% last week.

In the bond market Friday short-term rates jumped again, one day after Fed Chairman Alan Greenspan issued the latest strong warning that he is poised to tighten credit to restrain the economy.

Most analysts expect the Fed to raise its benchmark short-term interest rate from 5.25% to 5.5% at Tuesday's board meeting.

On Friday, the yield on three-month Treasury bills rose to 5.40% from 5.34% Thursday and now is the highest since Nov. 1995.

The six-month T-bill yield hit 5.57% Friday, up from 5.53% Thursday and 5.19% in mid-February.

But long-term yields were little changed Friday. The 30-year T-bond yield ended at 6.96%, up from 6.95% Thursday. The yield was 6.94% a week ago.

"It's starting to set into the mind of the marketplace that a preemptive strike [against inflation] is good," said George Adell, a trader at Philadelphia-based Starboard Capital Markets, referring to the likelihood of a Fed rate hike.

If the Fed succeeds in slowing the economy and keeping inflation restrained, long-term yields could soon slide, some analysts say.

Among Friday's highlights:

* Blue chips gaining included many perceived to be in predictable consumer businesses. Procter & Gamble jumped 1 3/8 to 121 3/4, Coca-Cola gained 1 to 60, Unilever rose 4 5/8 to 188 1/2, Sears rose 1 7/8 to 53 3/4, and Kellogg added 1 to 68 1/2.

* Bank stocks also rebounded. First Union rose 1 3/8 to 89 3/8, and J.P. Morgan added 1 1/8 to 104 7/8.

* Many tech stocks weakened again. Cisco Systems fell 1 7/8 to 49 1/4, Fore Systems lost 1 9/16 to 18 3/8, Microsoft sank 2 to 94, and Intel lost 2 3/4 to 130 1/2.

* Columbia/HCA Healthcare lost 2 3/4 to 38 1/2 on concern that a federal investigation of its El Paso operations could spread to other cities.

Market Roundup, D4

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