STOCKS : Dow Stays Put as Traders Wait for Cut in Prime

Wall Street’s celebration over the Federal Reserve’s long-awaited cut in the discount rate proved short-lived Wednesday as investors returned their focus to the anemic economy.

Investors were waiting for major banks to cut their prime lending rates in the wake of the Fed’s action, but the cuts never came. Also, the bond market rally reversed course.

The Dow Jones industrial index closed unchanged at 2,626.73. The last time the Dow closed at the same level two days in a row turned out to be a bad omen: On July 16 and 17 the Dow finished at 2,999.75--which remains the all-time high. Unable to break the magic 3,000 mark on those two attempts, the Dow trended lower later in July, then plunged with the Iraqi invasion of Kuwait Aug. 2.

The broader market was more upbeat Wednesday. Gaining issues on the New York Stock Exchange beat losers 845 to 686. Volume was 180.4 million shares, compared to 176.5 million Tuesday.

On Tuesday, the Fed cut the discount rate, which it charges member banks for short-term loans, to 6.5% from 7%. It was an attempt to push cash into the sluggish economy to boost growth, and investors cheered the news by sending the Dow up 33.41.

But in the aftermath, the stalemate in the Middle East and continued indications of a soft economy are giving stocks little incentive to gain further.

“People are looking at the fundamentals, which are not that good,” said Jay McElroy, principal at 1838 Investment Advisers.

Bradley Turner, chairman of McDonald & Co.’s investment policy committee, said, “I still say the overriding consideration of investors is the tone of fourth-quarter earnings.” Investors won’t see those reports until mid-January.

Among the market highlights:

* Many tech stocks continued to surge on hopes for an improving economy. AST Research, up 5 1/2 Tuesday on a strong earnings forecast, gained 1 5/8 to a 52-week high of 33 5/8. That marks a new all-time high as well for the Irvine personal computer maker. It had traded at 32 3/4 in the late ‘80s.

Advanced Logic jumped 1 3/4 to 10 3/4, Seagate Tech rose 7/8 to 11 3/4, Autodesk added 1 3/4 to 49 3/4 and Borland International gained 1 1/4 to 30 3/4. El Monte-based electronics distributor Marshall Industries inched up 1/8 to 21 1/2 after reporting a slip in quarterly earnings.

* Some industrial stocks rose on economic hopes as well. Alcoa jumped 1 1/8 to 58 7/8, Caterpillar gained 1 to 46 7/8 and Clark Equipment added 1 1/8 to 26 1/4. Chrysler rose 1/2 to 14 1/8, continuing to gain on news this week of investor Kirk Kerkorian’s 9.8% stake.

* Bank stocks, big winners Tuesday as the Federal Reserve cut interest rates, continued to rally, though less briskly. BankAmerica was up 1 5/8 to 26 5/8, and Wells Fargo added 5/8 to 58 3/8. But Citicorp dropped 7/8 to 13 1/4 and Security Pacific was flat at 22.

Some home builders gained on expectations that housing will revive with lower rates. Kaufman & Broad added 5/8 to 9 3/4 and Centex gained 1 1/8 to 31 1/8.

In London, stocks firmed in thin trading on the back of a higher opening on Wall Street. The Financial Times-Stock Exchange index rose 16.9 to close at 2,178.7.

In Frankfurt, German shares ended 1.4% lower after opening slightly firmer. The 30-share DAX index fell 20.17 to 1,457.24, its lowest close since Dec. 4.

In Tokyo, stocks closed higher in robust trading after the benchmark Nikkei index rose above 25,000 for the first time since Nov 1.

Prices soared after a cut in the U.S. discount rate reinforced expectations of lower rates in Japan, but the rally lost energy later. The 225-share Nikkei rose 452.76 to close at 24,876.78. At midday today the Nikkei was off 126.24.

CREDIT Profit Taking Pulls Down Bond Prices Bond prices dropped sharply Wednesday as traders took profits following a strong rally Tuesday.

The government’s bellwether 30-year bond dropped 1 5/32 points late Wednesday, or $11.56 per $1,000 in face value. Its yield rose to 8.17% from 8.07% late Tuesday.

Wednesday’s steep price fall came after a surge the day before on news the Federal Reserve had cut the discount rate, a key rate paid by banks, to 6.5% from 7%.

The Fed’s move was an attempt to inject life into a sluggish economy by encouraging banks to lower interest rates on loans.

Economists said the Fed acted again Wednesday, injecting reserves into the banking system to further reduce the benchmark federal funds rate 1/4 point to 7%.

But many bond traders still decided it was time to lock-in profits. The bond market has been rallying since October on expectations of Fed moves to lower rates.

CURRENCY Dollar Ends Mixed; Focus on Mark The dollar finished mixed in domestic trading Wednesday as fears of Mideast war overrode concern about lower interest rates.

Trading focused on the mark, with most players expecting German interest rates to stay firm.

In New York the dollar settled at 134.05 Japanese yen, up from 132.72 on Tuesday. But against the German mark the dollar was virtually flat at 1.478.

COMMODITIES Gold, Silver Climb on Fed Rate Cut The decision by the Federal Reserve to cut its discount rate sent gold and silver soaring on New York’s Comex.

Gold jumped $9.50 to $10.10, with the contract for delivery in February at $388 an ounce; silver rocketed 13.2 to 14.1 cents with December at $4.10 an ounce; platinum was 50 cents to $7.70 higher, with December at $416.40 an ounce.

Traders said prices responded to the potential for a turnaround in the economy, which could help raise industrial consumption of the metals and boost inflation.

Elsewhere, crude oil for February closed 1 cent higher at $26.93 a barrel on the NYMEX after pulling back from a high of $27.45.

Market Roundup, D6