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Fed's Rate Cut Makes for Mixed Day in Stocks

September 30, 1998| From Times Staff and Wire Reports

Some traders gave the Federal Reserve Board's long-awaited interest rate cut a Bronx cheer on Tuesday, but the market overall ended mixed.

Meanwhile, long-term Treasury bond yields ended at record lows in a late rally, while shorter-term yields showed no distinct pattern.

On Wall Street, the Dow quickly sank more than 90 points at midday after the Fed announced its quarter-point cut in its key short-term rate, to 5.25%.

But blue chips rallied to close off just 28.32 points at 8,080.52. Other indexes were mixed, and winners and losers were nearly evenly matched among Big Board shares.

Some traders booed the Fed's move on the floor of the New York Stock Exchange. Many had been hoping for a more dramatic move--a cut of at least half a percentage point.

"There were some players who were betting on a bigger cut, and they expressed their disappointment in the first few minutes," said Charles G. Crane, strategist for Key Asset Management.

Still, Crane noted, the Dow has rallied from a late-August low of about 7,400, in part on expectations that the central bank would begin to address the financial market mayhem around the world.

For the stock market, the issue now is whether investors can believe that lower interest rates--which, via mortgages and other instruments, have already filtered into the economy in recent months, anticipating a Fed move--can help assure that the U.S. economy remains healthy enough in 1999 to produce strong corporate earnings.

In the near term, earnings will be very much on investors' minds: On Tuesday, another batch of companies warned that near-term profits will be weaker than expected, mostly because of declining demand for U.S. goods in battered overseas economies.

What's more, the Conference Board, a private research group, reported Tuesday that its measure of consumer confidence fell for the third straight month in September, suffering the biggest drop since January.

In the bond market, shorter-term yields--which already have tumbled in recent months--were mixed. The two-year Treasury note yield ended at 4.45%, up from 4.43% on Monday.

But buyers jumped again into the 30-year T-bond, sending its yield to a record-low 5.09% from 5.15% on Monday. Experts are divided on how low longer-term yields can go in the near term--unless investors begin to bet on recession ahead.

In currency trading, the dollar stayed lower against the Japanese yen after the rate cut, amid speculation that industrialized nations will act together to boost the Japanese currency. The dollar was 1.40 yen lower at 134.45 in late New York trading.

Among Tuesday's highlights:

* An earnings warning from Goodyear Tire sent its shares down $3.75 to $52. Meanwhile, lowered earnings projections from analysts cut Avery Dennison $6.44 to $43.19, Viacom Class B shares $6.88 to $56.75 and CBS $2.50 to $23.25.

Also, Micron Technology, the world's No. 2 maker of computer memory chips, fell $2.25 to $31.63 after reporting that it lost money for a third consecutive quarter because of slumping prices.

And U.S. Home, the sixth-largest U.S. home builder, declined $2.88 to $29.31 after warning that third-quarter earnings will fall short of expectations because of construction delays.

* In the wake of the consumer confidence data, the prospect of weaker consumer spending hurt retail stocks. Wal-Mart tumbled $3.31 to $58.13, making it the Dow's biggest decliner.

* Stocks that will be included in the S&P 500 index after the close of trading today gained. Stocks of companies added to the index often rise because mutual funds whose portfolios match the makeup of the S&P 500 will be buying the shares.

Union Planters gained $3.75 to $51.13, BMC Software gained $2.63 to $59.06, PeopleSoft rose $2.19 to $33.50 and AES climbed $4.75 to $38.25.

Market Roundup, D10

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