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Wall St. distressed by data
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August 6, 1999: 5:10 p.m. ET
Stocks fall after employment report signals rising inflation, interest rates
By Staff Writers Malina Poshtova Zang and Robert Scott Martin
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NEW YORK (CNNfn) - Wall Street took its latest hit Friday from a July employment report that showed strong growth in both jobs and wages and reinforced fears that inflation is on the rise and interest rates are heading higher as well.
The Dow Jones industrial average lost 79.79 points to end at 10,714.03. Still, the blue chip index managed to inch up 0.55 percent this week, its gain for the year rising to 16.69 percent.
Market breadth on the New York Stock Exchange was negative, with losers ahead of gainers by 1,974 to 965 on trading volume of 701 million shares.
The Nasdaq composite index dropped 17.86 points to 2,547.97 and the S&P 500 index lost 13.42, or 1 percent, to 1,300.29. The Nasdaq lost 3.42 percent over the week and is now up 16.21 percent for the year. The technology-weighted index has tumbled 11 percent since its high of 2,864.48 set July 16.
The S&P 500 index declined 2.14 percent since last Friday and is currently up 5.78 percent for the year.
The bond market headed sharply lower as soon as the jobs data reached Wall Street, leaving the benchmark 30-year Treasury down 1-17/32 points, its yield rising to 6.16 percent from Thursday's 6.04 percent.
The dollar gained ground against both the yen and the euro.
Inflationary cloud darkens
In yet another sign that the economy is powering ahead and finally beginning to generate some inflationary pressure, the Labor Department said the economy churned out 310,000 non-farm jobs in July, leaving the unemployment rate steady at 4.3 percent. Average hourly wages rose by 0.5 percent in the month.
Both the non-farm payrolls number and the wage figures came in higher than economists had predicted, leading many to firmly forecast an interest rate hike on Aug. 24, the date of the next meeting of the Federal Reserve's policy-making body.
Back in the stock market, shares of financial services companies suffered once again as investors digested the growing likelihood of a rate hike. Financial firms are deeply sensitive to rising interest rates, which rob banks and other lenders of revenue by making customers less willing to borrow heavily.
Among the Dow's financial members, American Express (AXP) led the way down, falling 4-1/16 to 123-1/16. J.P. Morgan (JPM) fell 2-9/16 to 122-15/16 and Citigroup (C) retreated 1-9/16 to 42-7/16.
AOL rallies Internet
Investors applauded signs of defiance in America Online's quick alliances with rival Internet service providers Mindspring and EarthLink to counter an offensive by Microsoft in the battle for the instant messaging market. That, coupled with a wave of bargain hunting, helped propel most Web stocks higher, and helped keep the technology-rich Nasdaq from falling too deeply into the red.
Shares of America Online (AOL), the world's largest Internet service provider and currently the leading provider of instant messaging services, rose 11/16 to 84-5/8 after the company announced agreements to develop co-branded versions of its Instant Messenger software to be used by EarthLink (ELNK) and Mindspring (MSPG) subscribers.
Shares of Mindspring gained 2-13/16, or almost 11 percent, to 28-13/16, while EarthLink rose 4-1/2, or more than 12 percent, to 41-9/16.
The move comes in the wake of efforts by Microsoft (MSFT), banding together with other companies, to develop standard software for instant messaging. AOL recently blocked several efforts by Microsoft to allow non-AOL Internet users to communicate with AOL's Instant Messenger users, claiming the software would violate the privacy of the AOL membership database.
Shares of Microsoft, the world's largest software publisher, eased 5/8 to 85-1/8.
Technology shares waver
Confidence in other high-tech stocks ebbed despite an initial attempt to break out of the sector's recent cycle of heavy selling and stock price erosion. After making a strong start, the technological heavyweights backed off their highs, following the broader market's bearish trend.
Rising interest rates hurt the prospects of growth-oriented high-tech firms by making borrowing more difficult, drying up sources of ready expansion capital.
Still, news that British tax authorities are auditing IBM (IBM) failed to trigger heavy selling in the stock, leaving it up 7/16 to 123-1/2. Shares of fellow Dow 30 technology component Hewlett Packard (HWP) lost 3 to 111.
On the Nasdaq, Intel (INTC) gained 1/8 to 71-9/16, Dell (DELL) rose 1-1/16 to 39-13/16 and Cisco Systems (CSCO) finished up 3/4 at 62-1/4.
Elsewhere in the market, one of the day's few noteworthy deals was agricultural supplier Monsanto 's (MTC) decision to sell its cotton-seed unit to private buyout firm Hicks Muse for an undisclosed sum.
Monsanto shares fell 5/8 to 39-3/8 on news of the transaction, which may smooth any outstanding regulatory opposition to the company's merger with leading cotton-seed grower Delta and Pine Land (DLP). Delta shares, however, climbed 2-5/8 to 31-3/4.
(Click here for a look at today's list of CNNfn market movers.)
(Click here for a look at today's CNNfn technology stocks report.)
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