Stocks and bonds slipped Thursday after the Commerce Department posted a higher-than-expected U.S. trade deficit for June.
The monthly record $24.6 billion gap boosts U.S. borrowing needs at a time when overseas markets are becoming more attractive to global investors.
A widening U.S. trade deficit tends to depress the value of the dollar against other currencies and force U.S. interest rates higher.
The Dow Jones industrial average fell 27.54 points, to 10,963.84, on moderate New York Stock Exchange floor volume of 674 million shares. Earlier in the day, the Dow slumped 118 points on the trade news.
The broader Standard & Poor’s 500 index lost 9.25, to 1323.59, as losing stocks outnumbered winners by more than an 8-to-7 ratio among NYSE-listed stocks.
The Nasdaq composite index fell 36.30, or 1.4 percent, to 2621.43, led by declines in computer-technology giants Microsoft, Intel, Dell Computer and Cisco Systems.
Internet stocks swooned amid fears of higher interest rates. The index of Internet stocks traded at the Chicago Board Options Exchange sank 6.2 percent. On-line auction service eBay fell $12.19, to $113.75, and America Online dropped $3.19, to $96.
The Russell 2000 index of small-company stocks slipped 0.33, to 432.77.
Shares of on-line brokerage companies fell amid what appeared to be a price war. E*Trade Group offered investors rebates that would slash trading costs as low as $4.95. Its stock fell $2.62, to $25.44, and shares of Ameritrade Holdings fell $2.19, to $21.62.
Lehman Brothers cut its fourth-quarter estimates for both companies, citing declining trading volume and heavier spending to attract customers.
Treasury bonds slipped under the weight of the trade-deficit report, lifting the yield on the benchmark 30-year Treasury bond to 6.03 percent from 6.00 percent late Wednesday.
Analysts expect bonds to trade in a tight range at least until Tuesday’s meeting of the Federal Reserve’s monetary policy committee, at which the Fed is expected to push its short-term interest-rate target higher.
The dollar fell against the euro but ended little changed against the Japanese yen in New York trading. The dollar dipped below 111 yen per dollar, a seven-month low, but recovered to 111.40 yen.
In commodity news, oil prices headed higher in New York futures trading. Crude oil for September delivery rose 25 cents a barrel, to $21.77. The persistence of crude oil above $20 a barrel has been a major contributor to the latest inflation scare.
Too good: The most heartening words that long-suffering holders of depressed small-cap stocks can hear are “tender offer.”
A rationale for hanging tough with underperforming stocks is that another company with inflated stock of its own or a deep-pockets investor with a nose for bargains will come along and take the stock off your hands with an acquisition bid. The bid is known as a tender offer–an offer for you to tender your shares to the would-be buyer.
Hearing of such an offer for a dog stock, most investors would say “yes” and ask no questions.
But investors should look carefully at such offers, the Securities and Exchange Commission said in filing suit Thursday against an Arizona-based investment firm called IG Holdings. The firm was accused of failing to tell investors that its offers for shares were below the prevailing market price. IG agreed to a cease-and-desist order to stop violating securities regulations.
Tender offers for less than 5 percent of a company’s stock may be made without the full disclosures required of larger offers. “As a result, investors targeted for mini-tender offers typically don’t receive documents that describe the tender offer in detail,” the SEC said.
The SEC accused IG Holdings of making more than 200 mini-tender offers at prices below market prices.
For example, in January, IG offered to buy up to 2 percent of Chicago-based Midway Games, whose shares were trading near their 52-week low of $7.62. Granted, the stock had fallen from a 1997 peak of nearly $27, but IG’s offer of $7 a share was less than any investor could have received through the New York Stock Exchange.
Midway Games announced more than a week later that it had just heard of the questionable offer and warned investors not to participate.
Mini-tender offers come with restrictions that make it impossible for an investor to back out once the scam is realized, the SEC said. Midway Games closed Thursday at $13.75.
Local news: Housewares merchandiser Salton, based in Northbrook, gained $2.62, to $29.25, amid favorable comments by Wall Street analysts. Donaldson, Lufkin & Jenrette on Wednesday called the stock a “top pick.” On Aug. 4, the company canceled a planned offering of 2.9 million shares by the company and certain insiders, citing poor market conditions. DLJ was the lead underwriter of the proposed offering, which was announced June 28 and precipitated a $10 slide in the share price.
– Chicago-based National Equipment Services, which rents industrial equipment, plans to repurchase 1.5 million of the company’s 28.4 million shares. Nonetheless, shares fell 25 cents, to $8.25.
– Northbrook-based IMG Global edged up 6 cents, to $19.06, after the company said its joint venture with sister company Phosphate Resource Partners, also of Northbrook, cut phosphate production at its New Wales, Fla., plant. Shares of Phosphate Resource Partners ended unchanged at $10.06.
