Dow Up 6.86 as Investors Await Interest Rate News : Market Overview

Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:

The Dow Jones average of 30 industrials edged up 6.86 points to 3,391.98.

The dollar fell sharply on fears that the Federal Reserve Board will lower U.S. interest rates.

Stocks

Stocks were mixed despite reports showing favorable trends in inflation and retail sales.

Although the Dow edged up, advancing issues narrowly outnumbered declines on the New York Stock Exchange.

Volume on the floor of the Big Board came to 171.60 million shares, down from 192.80 million the previous session.

The market vacillated after release of a favorable inflation report. The Commerce Department said consumer prices rose a mere 0.2% in April. Economists had expected a 0.3% rise.

In other positive economic news, retail sales rose 0.9% last month, the third gain in four months, the government said. That was higher than the 0.2% economists had predicted.

Still, many investors were apparently putting off stock purchases because of speculation that the Federal Reserve will ease interest rates once more as insurance against a backslide in the economy. That would help stock prices.

“The market wants to go higher because of expectations of a Fed easing, but it’s concerned about the valuation of stocks,” said Jon Groveman, president of Ladenburg, Thalmann & Co.

Hugh Johnson, chief investment officer for First Albany Corp., added that stocks have come too far too fast, and investors are edgy. “The market is starting to become hesitant, directionless,” Johnson said.

On Monday, the Dow chalked up its 19th record high of the year, approaching 3,400 points. That psychological barrier has thus far proved elusive for the blue chips.

About the only excitement in the session came when former Soviet President Mikhail S. Gorbachev visited the New York Stock Exchange, where hundreds of traders cheered him.

The highlights:

* The most actively traded issue on the NYSE was Marion Merrell Dow, down 1/4 at 32 in heavy dealings. The drug marketer is offering 16 million shares of new stock.

* Other active issues included the Limited, up 3/8 to 22 1/8 after reporting flat earnings Tuesday; Coca-Cola, up 7/8 to 43 3/4, and Citicorp, up 7/8 to 19 5/8.

* Dana, an auto parts manufacturer, rose 1 1/2 to 41 3/8 after it filed for an offering of 4 million common shares.

* Vishay Intertechnology, a manufacturer of electronic components, jumped 2 3/8 to 23 on higher first-quarter earnings.

* In the photography industry, Polaroid climbed 7/8 to 25 3/8 on good comments from analysts, and Eastman Kodak rose 1 1/2 to 41 5/8 after announcing that earnings will be up later this year.

* The electronics firm Brooktree slid 3 1/4 to 12 after analysts cut earnings estimates.

* Sbarro slipped 7/8 to 26 1/8 after plunging 11 Tuesday on disappointing earnings and a negative analyst’s report.

Overseas, bargain hunting and arbitrage buying helped boost prices in Tokyo. The 225-share Nikkei average jumped 260.04 points to 18,768.57.

In London, the 100-share Financial Times index slipped 1.9 points to 2,720.5. Frankfurt’s 30-share DAX index fell 1.74 points to 1,749.42.

Credit

Bond prices moved higher in moderate trading after reports showing low inflation and weak car sales renewed hopes of another cut in interest rates.

The price of the Treasury’s bellwether 30-year bond rose 3/16 point, or $1.875 per $1,000 in face amount. Its yield, which falls when prices rise, was 7.84%, down from 7.86% Tuesday.

Bond investors started the day in a buying mode after the Commerce Department reported a modest 0.2% rise in April consumer prices, a sign that inflation remains in check. Low inflation is a positive sign for the bond market.

But the rally stalled when the government reported that retail sales rose 0.9% last month, much stronger than expected. Buying resumed when auto makers reported that sales in early May slipped 2.9% from the same period a year ago.

“There was somewhat more encouragement from sluggish car sales numbers,” said Carol Stone, senior economist for Nomura Securities International Inc.

Some economists believe that the economy’s weak pulse will encourage the Federal Reserve to cut interest rates further as a way to boost economic growth. Lower interest rates tend to make bonds and other fixed-income investments more attractive.

The federal funds rate, the interest on overnight loans between banks, rose to 4% from 3 11/16% Tuesday.

Currency

Dollar-selling reflected the fact that many traders believe the Fed will have to cut interest rates soon to boost the economy.

Lower interest rates make dollar-denominated securities less valuable to investors.

Kevin Lawrie, director of foreign exchange at the Bank of Boston, said selling exacerbated after reports that German union workers rejected a wage settlement. “It raised the prospect of another (interest) rate hike there,” he said, which would further hurt the dollar.

The dollar fell in New York to 1.6090 German marks from 1.6230 Tuesday. It slid to 129.60 Japanese yen from 130.55. In New York, it cost $1.8275 to buy a British pound, more expensive than Tuesday’s $1.8135.

Commodities

Forecasts of dry weather in the Midwest drove soybean futures prices up sharply on the Chicago Board of Trade.

Corn and oat futures also rose. Wheat futures were mixed.

On other commodity markets, energy futures declined; livestock and meat futures were mostly higher, and precious metal futures were mixed.

Soybeans for May delivery jumped 14 3/4 cents to $6.14 1/2 a bushel in Chicago, extending Tuesday’s 10 1/4-cent gain.

The soybean market’s sensitivity to weather forecasts has increased since the Agriculture Department on Monday projected a tightening of U.S. stocks.

Light, sweet crude oil for delivery in June fell 20 cents to $20.76 per barrel on the New York Mercantile Exchange.

June gold rose 30 cents to $336.10 an ounce on the New York Commodity Exchange. May silver slipped 0.3 cent to $4.086.