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Dow Up 16 but Techs Hit Again; Europe Surges

October 07, 1998| From Reuters

U.S. blue-chip stocks closed firmer Tuesday on hopes of global interest rate cuts, but many technology shares fell for a second straight session on jitters about corporate earnings.

Meanwhile, European markets surged after Spain's central bank cut short-term interest rates, reacting in part to approaching monetary union in Europe and in part to global financial woes.

But the U.S. bond market rally stalled. And in currency trading, the dollar plunged against the yen as Japan mulled new steps to revive its economy.

On Wall Street, the Dow Jones industrials ended up 16.74 points at 7,742.98 after surging more than 150 points early on.

In the broader market, declines led advances 1,702 to 1,343 on heavy volume on the Big Board.

The early rally fizzled by mid-session as big tech stocks fell again. They were hit Monday on fears of corporate spending cutbacks.

The tech-heavy Nasdaq composite index, down 4.9% on Monday, fell 25.80 points, or 1.7%, to 1,510.89 on Tuesday, led by Microsoft, down $3.56 to close at $97.63, and Dell, off $2.38 to $55.31.

Several key indexes hit 52-week lows, including the Russell 2,000 small-stock index, which fell 1.3%.

"We have had a real tug of war, and the bottom line is the market is still showing a high level of uncertainty," said Alfred Goldman, an analyst for A.G. Edwards & Sons.

With global recession fears rising, "the market wants to see more evidence that global leaders are taking action and that the International Monetary Fund has the money to do things," Goldman said.

Members of Congress said Tuesday that an agreement is likely this week to boost the IMF coffers by $18 billion, but only in return for deep reforms at the agency. The IMF needs cash to help emerging markets ride out the current global financial storm.

News of the Bank of Spain's cut in its benchmark interest rate--to a record low of 3.75%, from 4.25%--boosted European stock markets. The Spanish market soared 5.9%, the German market gained 3% and the British market jumped 4.4%.

The rate cut moves Spain nearer to the 3.3% short-term rate at the central banks of Germany and France, which are expected to be the benchmark when the euro currency is launched Jan. 1.

"Wall Street is desperately searching for some good news as we had a little bit [Tuesday] with an interest rate cut overseas," said Barry Hyman, strategist at Ehrenkrantz, King Nussbaum.

"But there is nothing worse than a market that does not hold gains. The market is nervous here about third-quarter earnings, and especially about technology," he said.

The dollar, meanwhile, plunged to 130.85 yen, down 3.40 yen from Monday's 134.25 close. It also fell against the German mark.

The yen was boosted by expectations that Japan will introduce new spending measures as its Parliament moves closer to passing reforms aimed at cleaning up the debt-laden banking system.

Prime Minister Keizo Obuchi ordered his Cabinet to draw up a package of spending and tax cuts that could total $225 billion. Also, the second-largest opposition party said it would support banking legislation proposed by the ruling Liberal Democratic Party.

In the U.S. bond market, yields rose, snapping a string of gains that pushed long-term yields to record lows. The 30-year Treasury bond yield ended at 4.73%, up from 4.71% on Monday.

Among Tuesday's highlights:

* Slumping tech issues included Cisco Systems, off $2.13 to $46.19; Lucent Technologies, down $1.31 to $57.56; and America Online, off $5.38 to $97.63.

* Most financial stocks fell further, with BankBoston down $1.75 to $29.38, Merrill Lynch off $1 to $41.94 and Mellon Bank down $3.38 to $49.63.

* On the plus side, surprisingly good quarterly earnings reports boosted Motorola $3.25 to $41.81, Alcoa $4.31 to $72.50 and Biogen $3.19 to $68.38.

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