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Spokane, Washington  Est. May 19, 1883

Uncertainty Likely To Persist In U.S. Markets

Bloomberg News

Rising tensions in the Middle East and lingering uncertainty about the prospects for Southeast Asian economies will cast a pall over the U.S. stock market in the days ahead, investors said.

The United States sent a second aircraft carrier to the Persian Gulf Friday after the United Nations Security Council warned Iraq of “serious consequences” if it refuses to allow normal weapons inspections to resume. At the same time, investors are concerned a slowdown in Asian economies will cause profits of U.S. multinationals companies to suffer next year.

“The psychology of the market is pretty negative,” said Ed Haldeman, a partner at Cooke & Bieler in Philadelphia, which oversees about $6 billion.

The turmoil abroad has overshadowed some positive developments at home, money managers said. Economic reports this week showed that inflation remains at bay, which sent bond yields lower and increased the likelihood that the Federal Reserve will stand pat on interest rates into 1998.

The yield on the benchmark 30-year Treasury bond, which sets lending rates around the globe, fell to 6.09 percent Friday; three months ago, the yield was 6.55 percent. Falling yields make stocks a relatively more attractive investment than bonds; and falling borrowing costs make it less expensive for companies to finance their businesses.

“We’re seeing some improving fundamentals in the economy, in terms of interest rates,” said Charles White, a money manager at Avatar Associates, which oversees about $4 billion. “Turmoil in foreign currencies keeps the Fed out of the game, and allows interest rates to drift lower. That’s supportive for equities.”

Among this week’s best performers were shares of retailers and telecommunications companies. Investors are snapping up stocks of companies with relatively limited exposure to overseas economies, betting those companies’ growth prospects won’t be trimmed too severely.

“Telephone stocks still look attractive to us,” said Anthony Spare, chief investment officer at Spare, Kaplan, Bischel & Associates in San Francisco. “They still look inexpensive. And if you look at their mix business, much more of their revenue comes from the domestic economy.”

Spare uses a stock’s relative dividend yield as a basis for purchases or sales. When a company’s dividend yield - the stock’s annual dividend divided by its stock price - rises above its historical average, that suggests the stock is undervalued. When the yield falls below its average, the stock is probably overvalued. Based on those measures, he likes GTE Corp. and US West Communications Group.

Southeast Asia isn’t the only corner of the globe causing U.S. investors concern. Brazil’s economy is expected to slow and reduce demand for exports.

Some investors said prospects for falling interest rates, and a likely increase in loan demand, make bank stocks attractive.