NEW YORK -- U.S. stocks fell yesterday, as concern that interest rates will rise offset a rally in computer-related shares.

"There's growing conviction that there's going to be an interest rate hike in May," said Mike Driscoll, a block trader at Hambrecht & Quist. "And as we get closer to the next Fed meeting, people are just peeling back their holdings."

The Dow Jones industrial average reversed a 77-point early gain and fell 20.47, to 6,792.25. AlliedSignal Inc. led the decline, after reporting earnings that matched analyst expectations.

An unexpectedly strong profit for International Business Machines Corp. sparked gains in such industry stalwarts as Computer Associates International Inc., Dell Computer Corp. and Oracle Corp. IBM gained $11.25 to $153.625; had it been unchanged, the Dow would have fallen about 57 points.

The Standard & Poor's 500 index fell 2.46 to 771.18. The Nasdaq composite index rose 0.96 to 1,228.10, its third straight gain.

The Russell 2,000 index of small capitalization stocks gained 0.12 to 338.52; the American Stock Exchange composite index was up 0.59 to 543.95; and the S&P; midcap index gained 0.57 to 251.77.

About 1,278 stocks declined on the New York Stock Exchange, while 1,172 rose. About 493 million shares changed hands, below the three-month daily average of 495 million.

Bond yields rose after Federal Reserve Gov. Laurence Meyer said the economy is growing at an "unsustainable" pace, in effect signaling that U.S. interest rate increases are likely.

Higher rates raise borrowing costs for consumers and corporations -- potentially hurting profits -- and make fixed-income investments more attractive relative to stocks. On March 25, the Fed increased rates for the first time in two years; policy-makers next meet May 20.

Meyer, in remarks prepared for delivery to the Forecasters Club of New York, warned that inflation could accelerate because of rising wages, a seven-year low in the jobless rate and factories operating at near capacity. His comments came as traders awaited a batch of economic reports scheduled for release next week. The government will report on labor costs on Tuesday, gross domestic product growth on Wednesday and job growth on Friday.

The yield on the benchmark 30-year Treasury bond rose to 7.13 percent yesterday, from 7.08 percent Wednesday.

"The first quarter's probably too robust to expect the strength to continue," said Ronald Stribley, who oversees $1.75 billion in stocks for Glenmede Trust Co. "If the economy doesn't slow down, the Federal Reserve's going to be aggressive again" and raise interest rates.

The Morgan Stanley High Tech Index, which represents the prices of 35 computer and telecommunications companies, gained almost 1 percent and is up 5.6 percent in the past three days. Computer Associates gained $4.375 to $48.50, and Dell rose $1.875 to $81.25.

Oracle climbed $1.75, to $39.50, and its options traded at 10 times the daily average as investors regained confidence in software makers. More than 8,400 shares of options to buy Oracle at $40 in mid-May changed hands, 10 times the daily average for the past month.

Compaq Computer Corp. gained $2.625, to $80.125, after the world's No. 1 personal computer maker unveiled plans to buy back as many as 25 million shares of its own shares. The program could remove as much as 9 percent of the company's stock from the market.

Among companies reporting earnings yesterday, American Express Co. said net income rose to 94 cents a share from the year-ago 80 cents, beating analyst estimates of 92 cents. American Express, a member of the Dow industrials, rose $1.875, to $63.125.

Dow Chemical Co. rose $2.125, to $81.875, after reporting first-quarter profit of $1.90 a share, above analyst expectations of $1.71.

Pub Date: 4/25/97

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