ROANOKE TIMES 
                      Copyright (c) 1996, Roanoke Times

DATE: Saturday, December 7, 1996             TAG: 9612090023
SECTION: BUSINESS                 PAGE: A-7  EDITION: METRO 
DATELINE: NEW YORK
SOURCE: Associated Press


LOOSE LIPS CAUSE DIPS STOCKS WORLDWIDE PLUNGE, RISE ON FED CHIEF'S WORDS

Stock markets around the world plunged Friday in a chain-reaction sell-off after the world's most powerful banker uttered a few choice words suggesting U.S. stock prices are too high.

Wall Street reacted swiftly, with the Dow Jones industrial average losing as much as 145.35 points in the first 30 minutes of trading. But as Federal Reserve Chairman Alan Greenspan's words sank in and employment figures suggested the economy is not running too hot, prices began to improve.

By the close of trading, the Dow average, the market's main barometer, was off just 55.16 points, or 0.9 percent, at 6,381.94. The technology-heavy Nasdaq Composite Index lost 1.0 percent of its value.

Investors like Michael Unger, who stopped in at a Fidelity Investments office near the New York Stock Exchange early in the day, may have been responsible for the comeback. He bought IBM shares, viewing the sell-off as an opportunity.

``I guess I'm bullish in the long term,'' Unger said. ``There are a lot of us who are waiting out there with cash. We didn't buy a year ago, and now we're waiting for bargains.''

Starting the waves of international selling, though, was Greenspan, who raised questions about ``irrational exuberance'' among investors, causing worries that the Fed may soon raise interest rates.

Greenspan, whose comments are always closely followed for shades of meaning, in a Thursday evening speech at the American Enterprise Institute, a Washington think tank, went on to note, ``The sharp stock market break of 1987 had few negative consequences for the economy.''

The day's drop on Wall Street, which at its worst totaled 2.3 percent for the Dow average, was not even close to the crash of Oct. 19, 1987, when the index fell 22.6 percent. But Greenspan's language nevertheless pushed buttons around the world.

Tokyo stocks dropped overnight, posting their worst decline of the year. In London, stocks fell more than 4 percent before recovering somewhat. Prices were off sharply in Paris and Frankfurt as well.

That selling spilled over onto Wall Street as U.S. stocks opened. Traders on the New York Stock Exchange said the tension was palpable before the day's action began, but things calmed down quickly.

Others, too, sensed a change after the big plunge.

``The first hour or so was kind of wild,'' said James Solloway, who follows the market as director of research at Argus Research Corp. ``Since then we've settled back, and now we just have merely a bad day, as opposed to a disastrous one.''

One factor mitigating the decline, and helping stocks recover in Europe, was early word from the Labor Department that the U.S. economy created a fewer-than-expected 118,000 jobs last month.

Such news would tend to dissuade the Fed from raising interest rates to slow the economy, the concern Greenspan's comments ignited.

Also, the day's selling came amid a powerful recent run in U.S. stock prices. The Dow Jones industrials are up about 25 percent so far this year, after gaining 33 percent in 1995. Even at its lowest Friday, the Dow had only taken back its gains since mid-November.

``People were in the mood to find an excuse to take profits,'' said Michael Metz, chief investment strategist at Oppenheimer & Co., a brokerage firm. The pros, however, seemed to be doing most of the selling.

In London, the Financial Times-Stock Exchange 100-share index ended the day down 2.2 percent after improving somewhat on the employment news.

The German DAX index in Frankfurt closed with a loss of 4.1 percent. Amsterdam stocks were almost 6 percent lower at one point but mostly recovered. The French CAC 40 index showed a partial recovery to finish with a loss of 2.3 percent.

Earlier, the sell-off pushed Tokyo prices into their sharpest drop of the year, a 3.2 percent plunge. Hong Kong's Hang Seng Index dropped 2.9 percent.

Jay Devlin, watching the ticker outside a Charles Schwab office at the World Trade Center during the afternoon, was resolved to ride out the day. ``I certainly wouldn't get excited about getting out. There's no underlying reason for panic, but there never is, is there?''


LENGTH: Medium:   83 lines
ILLUSTRATION: PHOTO:  AP. Traders on the floor of the New York Stock Exchange 

keep an eye on stock prices during Friday's sell-off, part of a

worldwide reaction to comments by Federal Reserve Chairman Alan

Greenspan. Graphic: Chart.

by CNB