NEW YORK -- U.S. stocks were mixed for a second day yesterday as gains in drug and health care issues offset concern that rising inflation will lead the Federal Reserve to raise interest rates.
The gains in drug stocks were sparked by American Home Products Corp.'s $8.5 billion bid for American Cyanamid Co. The offer, made late Tuesday, also raised hopes that more mergers and acquisitions in the industry are coming.
"The two-year hiatus is over," said Samuel Isaly, portfolio manager of the $10 million Medical Research Investment Fund. "Mergers are in high gear once again because there are a variety of companies with an uncertain future,"
Optimism about increased mergers and acquisitions couldn't overcome lingering concern about rates, though. "There's still nervousness out there about the direction of inflation and interest rates," said James Solloway, director of research at Argus Research Corp. Price increases announced by steel and paper companies "will ultimately wind their way down to retail" goods, he said.
The Dow Jones industrial average slipped as much as 15.54, before regaining some ground to close down 3.56, at 3,792.66. Losses in Bethlehem Steel Corp., Caterpillar Inc. and Goodyear Tire & Rubber Co., all companies sensitive to swings in the economy, led the decline.
Among broader market indexes, the Standard & Poor's 500 index rose 0.90, to 461.46, after losing 0.45 Tuesday. Gains in health care, paper, and chemical issues led the index higher. The Nasdaq composite index dropped 1.11, to 723.69, hurt by declines in Snapple Beverage Corp., Intel Corp. and Oracle Systems Corp.
Shares of Snapple tumbled $5.3125, to a 52-week low of $15.25, after the beverage maker's 56 percent rise in second-quarter profit fell short of Wall Street expectations. Recommendations on the stock were lowered at CS First Boston and NatWest Securities.
Advancing stocks led decliners 11-to-9 on the New York Stock Exchange, where about 282 million shares traded hands. The three-month daily average volume is 282.4 million shares.
American Home Products' $95-a-share bid for American Cyanamid helped stocks "because anytime you have the number of deals announced as you have lately, it gives people a warm feeling as they look at their portfolio," said Edward Collins, head of institutional trading at Daiwa Securities America.
Drug stocks, which rallied in late trading Tuesday, rose for a second day. Shares of Schering-Plough, coming off a $3.75 advance, jumped $1.375, to $67.875; Upjohn Co. added 87.5 cents, to $32.875; and Warner-Lambert Co., which surged $4.375 Tuesday, gained $4, to $72.50.
I= American Cyanamid shares soared almost $30 in after-hours
trading Tuesday. Yesterday, the stock fell $2.125, to $90.875, after being delayed 38 minutes at the start of trading. American Home, meanwhile, rose 62.5 cents, to $57.375.
Overcapacity in the pharmaceutical industry means "consolidation is inevitable," Mr. Isaly said. As an example, he cited Roche Holding Ltd.'s $5.3 billion acquisition of Syntex Corp. in May.
Stocks failed to rally along with Treasury bonds, which rose in late trading after major automakers reported weak July car sales. The yield on the benchmark 30-year bond, which moves in the opposite direction of its price, fell to 7.38 percent, from 7.40 percent Tuesday. Snapple, American Cyanamid, Newbridge Networks Corp., Telefonos de Mexico SA and Electrocom Automation Inc. were the most active stocks in U.S. composite trading.
Shares of Microsoft Corp., which rallied as much as $1.1875, closed at $53.375. The software company was named "Focus 1" stock of the week and was upgraded to "buy" from "above average" at Merrill Lynch & Co. by analyst Stephen McClellan. He thinks the company can sustain
more than 20 percent earnings per share growth over the next few years.
Trimedyne Inc. tumbled $3.25, to $3.625, after the maker of medical supplies said slow hospital purchases of capital equipment pushed its loss for the fiscal third quarter to 7 cents a share from 6 cents a year ago.
Conrail Inc. rose $2, to $56.25, after the Journal of Commerce reported that the rail company may be acquired by Norfolk Southern Corp., which seeks access to the Northeast. Norfolk Southern slipped 12.5 cents, to $63.625.