Markets Stabilize In Spite Of Rise In Wholesale Prices
NEW YORK (AP) _ The biggest rise in wholesale prices in 11 months sent new inflation jitters through the financial markets Friday, but stock prices stabilized a day after a $100 billion drop.
The Dow Jones average of 30 industrials rose 8.29 points to 2,013.93 after plunging 101.46 points on Thursday. Stocks also dipped in foreign markets and interest rates rose, but the dollar stabilized.
In spite of the Dow Jones increase, declining issues outnumbered advancing ones by about 9 to 5 on the New York Stock Exchange.
The Labor Department raised inflation worries with its report that the producer price index of finished goods rose 0.6 percent in March, an annual rate for wholesale inflation of more than 7 percent.
Investors had already been worried about inflation because of Thursday’s report that the merchandise trade deficit jumped unexpectedly to $13.8 billion in February.
The big trade gap signaled to some investors that an overheated economy was sucking in too many imports. The report also threatened to fuel inflation by knocking down the dollar, which would boost import prices.
In spite of the wholesale inflation report, the fear that drove prices down Thursday was largely absent from the markets on Friday.
″There’s a bit of concern in the producer price number but not anything great,″ said Lincoln Anderson, an economist for Bear, Stearns & Co.
Investors realized that the big jumps in food and energy costs that swelled the index in March were probably only temporary, Anderson said.
Interest rates rose Friday as traders speculated the Federal Reserve would try to wring inflation expectations out of the market by tightening credit and slowing down the economy.
Tightening by the Fed would push up interest rates in the short term but pave the way for them to decline over the longer term by easing fears of an overheated economy.
Some economists worried that the Fed would accidentally knock the economy into recession by trying too hard to cool things off.
″What’s absolutely amazing to me is that last fall all the experts were looking for recession and depression, and that was bad. Here, 180 days later, a strong economy is (seen as) bad,″ said Neil Eigen, senior vice president of Integrated Resources Asset Management, a New York money management firm.
The yield of the benchmark 30-year Treasury bond continued to rise to 8.94 percent by midafternoon Friday, a new three-month high, up from 8.86 percent Thursday.
The dollar bobbed within a narrow range after falling 2 percent Thursday against the Japanese yen, West German mark and British pound. Traders said major central banks bought dollars to support the currency for a second day.
Overseas Friday, key indexes fell less than 1 percent on the Tokyo and London stock exchanges.
The Dow industrials had climbed nearly 130 points from April 5 through Tuesday, largely on anticipation that February’s trade news would be favorable.
The value of U.S. stocks fell by $99.7 billion in Thursday’s plunge, according to a 5,000-stock index measured by Wilshire Associates of Santa Monica, Calif. Stocks fell an additional $1 billion in Friday, the organization said.