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FINANCIAL MARKETS

Fed Cloud Rains on Dow as Yields Rise

May 14, 1997|From Times Staff and Wire Reports

Revived worry over the Federal Reserve Board's meeting next week sent stocks down and bond yields up Tuesday.

The dollar also continued to lose ground against key currencies.

On Wall Street, the Dow Jones industrials eased 18.54 points to 7,274.21, surrendering all of a midday rally that followed on Monday's record high.

In the broad market, losers topped winners by 13 to 12 on the New York Stock Exchange and by 20 to 19 on Nasdaq.

The Nasdaq composite index slid 10.60 points to 1,333.59.

The bond market briefly provided some support for stocks early Tuesday after the Commerce Department reported that retail sales fell 0.3% in April, slightly more than expected and the biggest decline in 10 months.

In advance of key readings on April inflation, due today and Thursday, the retail sales figure suggests that the economy is slowing--which could keep the Fed from raising interest rates when it meets Tuesday.

But bond traders grew nervous after an anonymously sourced Reuters story said the Fed is still likely to boost its benchmark rate by a quarter-point next week.

The yield on the benchmark 30-year Treasury rose to 6.92%, up from Monday's 6.89%.

Higher yields didn't help the dollar, however. It slipped to 118.50 yen in New York, down from 119.30 on Monday and its lowest finish since late January.

Many analysts warn that stock and bond markets are so convinced that the Fed will stand pat next week that another harsh sell-off could occur if the central bank in fact raises rates.

Among Tuesday's highlights:

* Intel led stocks' retreat, tumbling 6 3/4 to 152 3/8 on news of a lawsuit by Digital Equipment, which rose 2 1/4 to 35 3/8.

* The afternoon pullback stole some thunder from IBM, which in the morning set an all-time high at 176 1/8 before retreating to 173 5/8, up just 1/8 on the day.

* Auto issues dropped as a strike at a GM unit that makes electronics parts threatened to close auto factories across the U.S. GM fell 1 1/2 to 56 3/4, Ford lost 1 1/4 to 35 3/4 and Chrysler lost 1/8 to 31 3/4.

* Deere shot up 2 1/2 to a record 51 1/2 after reporting sharply higher quarterly earnings.

In commodities trading, coffee prices soared to their highest level since July 1994 as continued worries about tight supplies sent speculators on a buying spree.

At New York's Coffee, Sugar and Cocoa Exchange, coffee for July delivery rose to a lifetime high of $2.43 a pound before slipping back slightly to close at $2.41, up 11.50 cents.

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