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Treasury Yields Fall on Economic Data

Reports of low inflation and soft manufacturing set off buying in bonds. Stocks edge higher.

September 17, 2004|From Times Staff and Wire Reports

U.S. Treasury bond yields fell to five-month lows Thursday, as reports of low inflation and soft manufacturing triggered a buying spree in the fixed-income securities market.

Stocks gained some ground on the economic news, but advances were kept in check by volatile oil prices late in the day.

The economic data painted a picture of tame consumer prices and slowing manufacturing growth -- both beneficial for safe-haven government debt.

That caused Treasury prices to rise, and their yields to tumble. The benchmark 10-year T-note yield sank to 4.07%, the lowest since April 1 and down from 4.16% on Wednesday.

The five-year T-note yield fell to 3.27%, down from 3.38% and the lowest since April 12.

Dealers noted, however, that liquidity was thin because many investors were off for the Jewish New Year, perhaps exaggerating bond price moves.

In the stock market, key indexes were modestly higher.

The Dow Jones industrial average finished up 13.13 points, or 0.1%, at 10,244.49.

The Nasdaq composite index added 7.56 points, or 0.4%, to 1,904.08. The Standard & Poor's 500 index gained 3.13 points, or 0.3%, to 1,123.50.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange in modest trading.

Near-term oil futures prices in New York rose 30 cents to $43.88 a barrel, despite preliminary reports that Hurricane Ivan was less damaging to oil production facilities in the Gulf of Mexico than feared. Oil opened the day lower, and analysts said prices were driven up by traders who expected oil to fall even further, forcing them to cover their bets at the end of the day.

On the economic front, the government said the consumer price index rose 0.1% in August. It was a better reading than the 0.2% rise forecast by many economists.

Analysts said the economic lull in late spring and early summer made it harder for some companies to raise prices.

That cheered the bond market. So too did a report from the Federal Reserve's Philadelphia branch showing a slowdown in mid-Atlantic manufacturing activity this month.

Merrill Lynch told its clients Thursday that the slower economy and tame inflation might mean that the Fed's key short-term interest rate was close to peaking.

Fed policymakers meet Tuesday and are expected to raise their rate from 1.5% to 1.75%. If the Fed gets the rate to 2% by year's end, it may then hold it there through 2005, Merrill Lynch said.

"There's no reason for the Fed to be aggressive" with rates, Alan De Rose, a bond trader at CIBC World Markets in New York, told Bloomberg News.

That could be good for bonds and stocks. But in the near term, investors still must cope with uncertainty over oil prices, the job picture, third-quarter corporate earnings and the presidential race, many pros say.

Among Thursday's market highlights:

* An index of insurance stocks climbed 0.5% after Eqecat, which estimates insurance losses, predicted Hurricane Ivan might cost insurers $2 billion to $10 billion, down from as much as $20 billion if the storm had socked New Orleans.

Allstate rose 37 cents to $48.08, St. Paul Travelers increased 72 cents to $34.84 and XL Capital gained $1.06 to $72.93.

* Many financial-services and real-estate-related shares rose on optimism that long-term interest rates might decline further. SunTrust Banks gained $1.15 to $68.17, Golden West Financial jumped $2.36 to $115.06, Countrywide Financial added 47 cents to $37.92 and home builder Standard Pacific rallied $1.15 to $53.90.

* Lower interest rates also helped push the Dow utility index up 2.62 points, or 0.9%, to 294.25, a two-year high.

* Google surged $1.97 to $113.97, a record closing high since it went public Aug. 18. The stock will be added to the Dow Jones Wilshire 5,000 stock index after the close of trading today, Wilshire Associates said.

* Nortel, North America's largest maker of telephone equipment, lost 30 cents to $3.50. The company said sales growth this year would lag that of rivals and predicted third-quarter revenue would fall from the second period's $2.6 billion.

* Coca-Cola, which on Wednesday warned of weaker earnings, fell $1.12 to $40.04.

* Multimedia Games tumbled $1.89 to $15.10. The world's No. 1 maker of bingo games for racetracks and casinos had its fourth-quarter earnings estimate cut to 33 cents a share from 38 cents by Prudential Equity Group, which cited construction delays at three of the company's development facilities.

* Corona-based Watson Pharmaceuticals had the second-biggest gain in the S&P 500, climbing $1.29, or 4.6%, to $29.67. Shares of the largest U.S. maker of oral contraceptives could jump 50% because of new drugs, cost cutting, and the prospect of a takeover by one of its rivals, wrote Michael Krensavage, an analyst at Raymond James. He raised his rating to "strong buy" from "market perform."

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