Rate fears continue to depress stocks Dow dips 5.38


NEW YORK -- U.S. stocks fell yesterday for a fourth day amid nagging concern the Federal Reserve will raise interest rates at next week's meeting of its policy-making committee.

"There is a formidable wall of worry out there," said Hugh Johnson, chief investment strategist at First Albany Corp. "There are good reasons to believe the Fed will raise interest rates next week." Investors are concerned that higher rates will slow the economy and crimp corporate earnings.

The Dow Jones industrial average fell 5.38, to 3,831.75, dragged lower by skidding shares of General Motors Corp., Sears, Roebuck & Co. and Goodyear Tire & Rubber Co. This week the Dow industrials declined 2.6 percent, or 101.6 points, to its lowest point since Aug. 25.

Among broader market indexes, the Standard & Poor's 500 index fell 1.60, to 459.67, its sixth straight decline. Automakers, retailers and financial companies were the biggest losers.

Major market indexes see-sawed throughout the day as four waves of computer-generated orders to sell stock and two orders to buy shares pushed the Dow industrials down a total of 10.5 points and the S&P; down 1.2 points, according to Birinyi Associates Inc.

The Nasdaq composite index fell 2.98 to 757.46. The decline was led by shares of Microsoft Corp., Intel Corp. and Oracle Systems Corp.

Stocks started falling Tuesday amid rising conviction the Fed's Federal Open Market Committee will boost rates at next week's meeting to quell inflation.

Anticipation about a sixth rate boost this year was stoked early this week by Wayne Angell, chief economist at Bear, Stearns & Co. and a former Fed governor, and economists at Goldman, Sachs & Co., all of whom predicted the central bank will raise rates by 50 basis points at next week's meeting.

The rate on overnight bank loans, or the fed funds rate, is now 4.75 percent, and the discount rate, what the Fed charges member banks for loans, is 4 percent. The yield on the government 30 1/4 -year Treasury bond rose to 7.79 percent from 7.78 percent at Thursday's close.

Higher rates boost corporations' borrowing costs and threaten to slow the economy, hurting future profit growth. They also make fixed-income investments more attractive than stocks.

Mr. Johnson at First Albany said he was slightly positive about the outlook for stocks because pessimism was so strong, signaling an extreme.

"The skepticism is so widespread on Wall Street you can cut it with a knife," he said.

Only 31.6 percent of investment advisers were bullish about the outlook for stocks last week, according to a survey of 140 market letter writers compiled by Investors Intelligence newsletter. Meantime, 51.3 percent of advisers expected stocks would fall.

Philip J. Orlando, who manages $100 million at First Capital Advisers, expects stocks to fall over the next few weeks, with the Dow industrials declining to 3,750, or another 2 percent, giving stocks "more reasonable valuations."

After that, he predicts stocks will rally and the Dow industrials will reach 4,150 within three months. He has been buying automakers and other transportation companies such as Southwest Airlines Co., Yellow Corp. and Conrail Inc.

Concern that rising rates would crimp consumer borrowing helped hammer shares of automakers, whose sales depend on consumer credit. General Motors Corp. slipped $1.625, to $46.625; Chrysler Corp. fell $1.125, to $43.75; and Ford Motor Co. fell 37.5 cents, to $26.625.

Separately, GM said it was recalling 174,000 1994 model cars to replace and reposition electric door-lock relays and replace defective seat-belt partners. GM also agreed to sell its National Car Rental Systems unit to an investment group led by Vestar Equity Partners LP for as much as $1 billion.

Trading was moderate, with 300 million shares changing hands by the close of the New York Stock Exchange. Three stocks fell for every one that rose on the Big Board.

Corporate Express shares rose $4.75, to $20.75, from their initial offering price of $16. The office supply retailer's initial public offer of 7.5 million shares began trading yesterday.

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