Several banks yesterday lowered their prime lending rate a full point to 14 percent, lowest in almost two years, prompting a brief stock market rally that fizzled by the late in the day.
After Bankers Trust of New York and Cleveland's AmeriTrust announced half point drops in the prime lending rate, charged on loans to their best customers, the Dow Jones average of 30 industrials surged almost 13 points by midafternoon, to just over the 800 mark.
By the market's close, the key industrial stock index had risen by just 4.38 to 792.43 in limited trading. "Things really faded very badly," said Richard McCabe, vice president and manager of market analysis for Merrill Lynch Pierce Fenner & Smith Inc.
The cuts in the prime rate followed Friday afternoon's decision by the Federal Reserve Board to cut the discount rate by a half point to 10 1/2 percent, the third time the rate the Fed charges banks for loans has been lowered in the past month.
As the two banks cut the prime rate to 14 percent, most leading money center banks cut their rates by a half point to 14 1/2 percent. Among the banks taking that step yesterday were Bank of America, Citibank, Continental Illinois, and First National Bank of Chicago.
Although Friday's discount rate drop pushed the Dow industrials up more than 11 points, the rate news seemed to wear thin on Wall Street, where most analysts are saying that the Fed actions are only a reflection of the magnitude of underlying poor economic conditions.
The early push, however, was strong enough to increase the price of more than 1,150 stocks on the New York Stock Exchange. About 400 stocks fell in price, while 365 were unchanged. The NYSE's composite index rose 0.21 to 59.75, as volume rose to 55.42 million shares, up sharply from 44.72 million shares traded Friday. With company management considering its response to a merger bid, Cities Service stock did not trade during the session.
On the bond market, which began to pick up Friday after the discount rate news, trading was moderate, with bond sales at $35 million, up over 10 percent from Friday. Corporate issues were sharply up yesterday morning, but fell off by late afternoon, with many bonds leveling off at Friday's rates.
In addition, yesterday's Treasury auction produced the lowest rate on three- and six-month bills in two years.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 66.25 million shares.
Standard & Poor's index of 400 industrials gained 0.12 to 115.74, and S&P's 500-stock composite index was up 0.24 at 104.09.
The American Stock Exchange market value index rose by 0.73 to 238.27, as volume dipped to 4 million shares, down from 5.8 million on Friday. The average share price was up 3 cents, while 322 stocks advanced and 206 declined. The NASDAQ composite index was up 0.54 to 159.69.