|
Dow down on rate hike
|
 |
March 25, 1997: 8:46 p.m. ET
Stocks end mixed in volatile trading after Fed decides to raise interest rates
|
NEW YORK (CNNfn) - The Federal Reserve did what it was expected to do Tuesday but Wall Street still acted like it was caught off guard.
After the central bank announced that it had raised short-term interest rates a quarter percentage point, stocks and bonds snapped out of their malaise and traded up and down erratically.
The Dow Jones industrial average, which hovered in a narrow range prior to the Fed move, shot up about 50 points immediately after the announcement. But a sell program buried all of that gain and more as the measure closed down 29.08 points to 6,876.17.
New York Stock Exchange advances edged declines, 1,261 to 1,216, with more than 485.7 million shares changing hands.
The broader market indexes were equally volatile. The S&P 500 fell 1.82 points to 789.07, and The American Stock Exchange index dropped 1.78 to 586.16. But the Nasdaq Composite gained 5.42 to 1,248.06.
The rate hike, from 5.25 percent to 5.5 percent, was the first in more than two years and was expected to increase consumer borrowing costs on everything from auto loans to credit cards.
Analysts, though, applauded the move as a necessary strike against inflation.
"The Federal Reserve engages in a series of rate hikes at the tail end of an expansion when inflation is accelerating," Wayne Angell, chief economist at Bear Stearns, said. "What the Federal Reserve has done today is they made that less likely and thereby this expansion is more apt to go on as long as the year 2000."
Like stocks, bonds experienced a relief rally after hearing of the rate hike. But that market also reversed course. The benchmark 30-year Treasury fell 16/32 in price, lifting the yield to 6.96 percent.
Investors were worried that more preventive measures from the Fed may be on the way.
"If the economy continues to grow rapidly in March and April, (the Fed is) likely to raise that funds target again in May," Bill Sullivan, money market economist at Dean Witter Reynolds, said. "So the market's been put on notice: Unless you see some overall moderation in economic activity, particularly in consumer spending, we're likely to see further tightening action down the road."
Joseph Battapaglia, chief of investment policy at Gruntal, said now that Fed has made its move, investors can return to business as usual. (135K WAV) or (135K AIFF)
Rate changes always affect the financial sector. Among key issues, Citicorp (CCI) fell 7/8 to 115-3/4, while Chase Manhattan (CMB) declined 1-5/8 to 101-3/4, and J.P. Morgan (JPM) shed 1/2 to 106-3/8.
Elsewhere, Boeing (BA) slipped 1/8 to 105-5/8 after the company inked an agreement to sell five 777 passenger jets to China Air for $686 million, while General Motors (GM), which announced its own deal in China, lost 7/8 to 57. GM signed a $1.57 billion deal forming a joint venture with Shanghai Automotive industry to build mid-sized sedans.
Tech firm Integrated Systems (INTS) tumbled 5-3/4 to 11-3/8 after the company warned that earnings in the fourth quarter and for all of fiscal 1997 will fall short of expectations. Analysts had forecast earnings of 19 cents a share for the quarter and 55 cents a share for the year. But the company lowered those figures to 10 cents a share for the quarter and 31 cents for the year.
Warner-Lambert (WLA) rose 1-3/4 to 91-1/4 following Morgan Stanley's decision to upgrade the stock to "strong buy" from "outperform."
Motorola (MOT) gained 1-1/4 to 58-5/8 after reports said the semiconductor company is close to winning a major digital cellular telephone contract in Japan. Separately, America Online (AOL) announced it will launch an online service in Japan, sending shares up 1/2 to 42-3/8. 
-- Scott Benjamin
|
|
|
|
|
 |
|
