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Investors Play It Safe, Await Fed Action

January 31, 2001|From Times Staff and Wire Reports

Investors flocked to the relative safety of blue chips and shied away from the tech sector Tuesday while awaiting the Federal Reserve's anticipated interest rate cut.

The Dow Jones industrial average surged 179.01 points, or 1.7%, to 10,881.20, its biggest gain since Jan. 3--the day of the Fed's first rate cut.

Meanwhile, Treasury bond yields tumbled as the latest downbeat consumer confidence report seemed to cement the expectation of more central bank rate-easing moves.

But investors in the tech-heavy Nasdaq market turned cautious, putting off major purchases at least until the Fed's expected announcement today, when policy makers will conclude a two-day meeting.

The Nasdaq composite inched up a mere 0.01 point to 2,838.35 after seesawing all day. Smaller stocks in general struggled.

Still, winners outnumbered losers by 11 to 8 on Nasdaq and by 19 to 12 on the New York Stock Exchange in moderate trading.

The Fed is expected to cut its benchmark short-term rate by half a point today, to 5.5%.

The consumer confidence data reported Tuesday "were pretty shocking," said Ronald J. Hill, strategist at Brown Bros. Harriman & Co. "The deterioration was greater than people had expected.

"What it does say is that there is a reason the economy is slowing and it has a lot to do with consumers' poor outlooks for the future."

The news sent investors rushing to lock in Treasury bond yields. The yield on the two-year T-note dropped to 4.7% from 4.77% Monday. The yield on the 10-year T-note slid to 5.22% from 5.29%.

"The Fed will have to be a whole lot more aggressive" in cutting rates, said Jeffrey Caughon, who is buying Treasuries maturing in one to three years for the $300 million he manages at Tinker Federal Credit Union in Oklahoma City.

Buyers also snapped up some "old-economy" stocks in the Dow, perhaps betting that the Fed, in lowering rates, will keep the economy out of recession and spur growth again by the second half of this year, analysts said.

International Paper rose $1.18 to $38.51, GM gained $1.35 to $55.60 and 3M rose $4.11 to $111.40.

But some experts cautioned that Wall Street could turn cold toward stocks in coming weeks if it appears the Fed won't succeed in reigniting the economy.

"If we go into recession, people don't want to be long on stocks," Hill said.

Among Tuesday's highlights:

* Procter & Gamble helped the Dow as the stock jumped $4.25 to $71.10 on the heels of the company's better-than-expected earnings report.

* Heavy-industry shares in general were strong. Winners included Dow Chemical, up $1.16 to $33.30; Alcoa, up $1.40 to $35.42; and Caterpillar, up $1.30 to $44.40.

Airline stocks also were strong. Delta rose $1.25 to $47.13 and Continental gained 50 cents to $51.16.

* In the tech sector, some industry leaders pulled back. Nokia fell $1.71 to $35.28 after predicting weaker earnings. Other major issues losing ground included Microsoft, down $1.13 to $63.38; Sun Microsystems, down $1.50 to $32.06; EMC, down $1.14 to $78.75; and Oracle, down 13 cents to $30.31.

Brocade Communications slid $6.44 to $98.50. Brokerage Goldman, Sachs & Co. said the company's profits probably won't beat expectations by as much as they have in the past.

But QLogic rose $5.44 to $87.69, Computer Associates gained $2.15 to $37.50 and IBM rose $1.63 to $116.61.

* Market Roundup: C9, C10

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