Stock prices advanced Tuesday for a third straight session, amid growing investor confidence that global financial stress is being addressed appropriately by the world’s economic leaders.
Stocks in Brazil and Mexico soared in the hope that leaders would not abandon the region to more episodes of contagion from Asia’s financial meltdown.
Investors around the world anxiously awaited congressional testimony, scheduled for Wednesday afternoon, by Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary Robert Rubin on the global financial situation.
The Dow Jones industrial average gained 79.04 points, or 1 percent, to 8024.39, bringing the popular index back to the level established after the spirited post-Labor Day rally on Sept. 8. The Dow industrials have gained 409 points, or 5.4 percent, in the last three sessions.
The Standard & Poor’s 500 index added 7.96, to 1037.68, as winning stocks outnumbered losers by a 17-to-13 ratio among NYSE-listed stocks.
Once again, shares of major banks led the blue-chip rally. The Keefe Bruyette & Woods index of major bank stocks rose 2 percent. Chase Manhattan, with $13.6 billion in loans and other commitments in Mexico and South America, rose $2.87, to $49.12, in active NYSE trading.
On the downside, BankAmerica, with an $11.3 billion Latin American exposure, dropped $1, to $62.81, after it boosted by 50 percent–to $330 million–its earlier estimate of third-quarter trading losses related to dealings in emerging markets in Asia and Latin America.
The Nasdaq composite index rose 12.42, to 1678.11, but losing stocks outnumbered winners by a slight margin.
Treasury securities closed lower amid rumors of an international bailout for Latin America. Late in the day, the World Bank confirmed talks with Argentina about a $4.5 billion emergency loan arrangement.
Treasuries also slumped on indications in the August U.S. retail sales report that consumers still have their pocketbooks open, although new-car sales did not fully recover from the summer’s strikes against General Motors.
Among stocks in the news, drugmaker Pfizer slipped 69 cents, to $109.56, on the day its Viagra drug for impotence was approved for sale in Europe.
Cummins Engine of Columbus, Ind., sank $7.50, to $35.25, after the diesel engine manufacturer predicted major disappointments in third-quarter sales and earnings results, because of slowdowns in Asia and global slack in demand for agricultural equipment.
Telecommunications equipment maker Lucent Technologies dropped $2.37, to $74.50, after an analyst at Lehman Brothers said uncertainties in Asia and Latin America have darkened the outlook for telecom equipment stocks.
Words speak louder: An apparent leadership vacuum in global financial affairs after Hong Kong, Malaysia and Russia last month openly abandoned free-market principles is being filled, by talk if not by action.
Congressional testimony set for Wednesday by Fed chief Greenspan and Treasury Secretary Rubin will be aimed, in large part, at reassuring political leaders in Latin America and other emerging economies that their steps–however halting–toward reforming their economies according to doctrines of Western capitalism have not been for naught.
Greenspan and Rubin almost certainly will declare that they and their fellow central bankers and finance ministers stand ready to avert further financial calamity in emerging economies and will emphasize the linkages between prosperity at home and prosperity abroad.
But cheerleading on behalf of emerging-nation political leaders–especially those in Latin America–does not mean that the Fed is about to cut its short-term interest rate target of 5.5 percent, as many market pundits expect. The Fed’s monetary policy committee has its next scheduled meeting Sept. 29.
“Washington is very focused on the spread of financial turmoil into Latin America,” said James Annable, chief economist at First Chicago NBD.
Latin American leaders are complaining loudly that they don’t deserve to be targets of speculators, he said.
“Greenspan needs to indicate that they are very important to us, that disorderly markets occurring in Latin America could rebound on our interests in the United States.”
But Greenspan has yet to see evidence in the U.S. economy to warrant cutting interest rates, Annable said. “I don’t think he really wants to cut rates,” he said.
Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., agreed. He added that remarks Tuesday by Eddie George, Greenspan’s counterpart at the Bank of England, and Hans Tietmeyer, head of Germany’s central bank, suggest that coordinated rate cuts by the seven major industrialized nations are not imminent.
On the other hand, it’s possible that G-7 finance ministers sense a pending disaster in the world’s banking system that might require coordinated rate cuts regardless of underlying economic conditions in their home countries, he said.
Local news: Several Chicago-area companies announced share repurchase programs in the stock market slump, among them Richardson Electronics, Diamond Technology Partners, Prime Group Realty Trust, Chicago Bridge & Iron and Female Health.
