House's defeat of budget bill is blamed for a 60-point loss early in dayStocks closed broadly lower Friday in moderate trading after the Dow industrials recovered virtually all of an early plunge tied to the House's defeat of compromise legislation aimed at reducing the size of the federal buget deficit.
The Dow Jones industrial average, which rose 27.47 Thursday, lost 6.19 to close at 2510.64 after having bottomed out with a loss of about 60 points shortly after the opening, triggering the exchange's rule curbing program selling.Among broader market gauges, the New York Stock Exchange composite index fell 0.63 to 170.70 and Standard & Poor's 500-stock index eased 1.19 to 311.50. The price of an average share lost 11 cents.
Like the Dow, the broad market recovered much of its early weakness. Declines led advances 903-589 among the 1,952 issues crossing the NYSE tape after having led by a margin of more than 10 to 1 in early trading. Big Board volume totaled 153,380,000 shares, up from 145,410,000 traded Thursday.
The House, under strong public pressure, defeated the deficit-cutting package by an overwhelming 254-179 vote early Friday morning.
An unpalatable mix of taxes and spending cuts - including higher charges for Medicare recipients - doomed the compromise reached between administration and congressional negotiators that President Bush announced last Sunday with great fanfare.
The House vote sent prices plunging from the opening, with a 60-point loss after about 15 minutes of trading. But the Dow then rebounded, eventually retracing almost all 60 points as investors were heartened by renewed efforts to get a budget passed.
"The market tanked this morning on the news that the agreement fell apart but rose on chatter that they would work through the weekend to work something out, and it looks like they will," said Jeff Kaminsky, head of institutional sales trading at Mabon, Nugent & Co.
Late Friday, Bush said he would not sign another stopgap spending bill and appealed to Congress to enact a budget agreement by midnight Friday or face a shutdown of the federal government.
With the specter of a government closed down except for essential services, the administration and Congress launched a frenzied drive to come up with a substitute plan.
Meanwhile, House Speaker Thomas Foley, D-Wash., met with key Republican and Democratic leaders to consider another temporary spending bill. He told reporters he would seek passage of the stop-gap measure by midnight.
Kaminsky said the Dow also was helped in its recovery by the Bank of England's full-point cut in the central bank's prime rate, which was a necessary component of Britain's entry into the European Monetary System's exchange rate mechanism. Both moves were announced Friday.
The move is considered both a boon to British business and a major step towards European monetary union.
On the trading floor, Hanson PLC was the most active issue, up 3/4 to 19 3/4.
Philip Morris followed, down 1/4 to 47 3/4. Waste Management was third, off 1/8 to 32.
The new issue of RJR Nabisco convertible preferred stock was next, down 1/2 to 19 1/4.
Among other blue chips, AT&T lost 1/2 to 31 3/4, American Express fell 3/8 to 20 5/8 and Sears fell 1 to 25, while IBM rose 3/8 to 108 1/4, Coca-Cola gained 1/2 to 42 1/4 and General Motors gained 1 to 37.