Closing Market Report

Star-Bulletin news services

Thursday, January 14, 1999

Blame it on Rio:
Dow off 228

The sell-off leaves the blue-chip
index and the S&P 500 down for the year

NEW YORK -- Stocks were pummeled for the second day in a row, as deepening economic worries in Brazil caused concerns that profits of U.S. multinational companies operating there could suffer. The Dow Jones industrial average lost 228.63 points, or 2.45 percent, at 9,120.93, dropping below where it began the year. It was the Dow's worst decline since Oct. 1.

"You have absolute nervousness about the international economy" after Brazil devalued its currency yesterday, said Dan Eagan, a money manager with BlackRock in Philadelphia, which oversees $120 billion. "I'm not predicting a financial meltdown, but when you have expensive U.S. stocks and negative news, you get a pullback."

Yesterday, the Dow fell 125.12 points to 9,349.56 after the devaluation of Brazil's battered currency, the real, and the sudden resignation of its top central banker increased worries that the country's turmoil would infect the rest of the region. Brazil is Latin America's largest economy and a major U.S. trading partner.

In Brazil today, trading in the Sao Paulo stock exchange, Latin America's largest, was halted for 30 minutes after a 10 percent plunge this afternoon, following a 5 percent drop yesterday. Trading resumed a half-hour later, the leading stock index in Brazil ended the day down 9.97 percent.

Mexico's main stock index, meanwhile, lost 1.7 percent of its value.

After tumbling yesterday, European markets were mixed today. London's main stock index was off .51 percent, while French stocks climbed about 1 percent and German stocks were down 1.6 percent.

"Yesterday's drop was justified in light of what happened in Brazil . . . but today people are going to take a step back and realize there's really no reason to panic," said Andres Marinovic, a trader with Credit Lyonnais Securities in Paris.

Patrick Foley, economic adviser at Lloyds TSB in London, however, was not as optimistic.

If Brazil's "economy collapses, the implications for the U.S. economy and the rest of the world are fairly significant," he said.

Most Asian stock markets fell today in reaction to Brazil's financial woes but a stronger U.S. dollar boosted share prices in Tokyo -- the region's largest exchange. Tokyo investors bought shares of companies heavily dependent on exports, betting the weaker yen would help stoke profit growth at big auto and electronics manufacturers.

The benchmark 225-issue Nikkei stock average climbed 2.50 percent to close at 13,738.86. But the blue-chip Hang Seng Index in Hong Kong lost 0.9 percent. In Singapore, the main Straits Times Index closed 1.97 percent lower.

On Wall Street today, decliners led advancers by a 12-to-5 margin on the New York Stock Exchange, with 901 up, 2,166 down and 480 unchanged. NYSE volume was 793.68 million shares, vs. 929.95 million yesterday.

The Standard & Poor's 500 fell 22.21, down 1.8 percent, to 1,212.19, putting the index below its starting level for 1998. The technology-heavy Nasdaq composite index fell 39.99, or 1.73 percent, to 2,276.82. The NYSE composite index closed at 581.07, down 9.65, and the American Stock Exchange composite index ended at 698.16, off 1.23. The Russell 2000 index dropped 4.76 points to close at 420.10.

The price of the U.S. Treasury's main 30-year bond was up 5/16 point, or $3.121/2 per $1,000 in face value, around midday, while its yield slipped to 5.10 percent from 5.13 percent late yesterday.

Stock investors are not so much concerned with Brazil, which by itself takes up only 2 percent of U.S. exports. But Brazil is the biggest and most important economy in Latin America, which accounts for 20 percent of U.S. exports. The real fear is that its problems will spread throughout Latin America and specifically to Mexico, a major trading partner with the United States.

President Clinton's impeachment trial, which began today, adds "another layer of uncertainty to the market. This is a time when the world needs leadership," said Charles White, president of Avatar Associates, a $3.5 billion money management firm. "There's more room for negative surprises."

Banks and other companies that depend on Latin America for their profits fell on concern that Brazil is heading toward recession. U.S. financial services companies, which have an estimated $65 billion in investments at risk in Latin America, led the Standard & Poor's index lower.

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