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To: Ahda who wrote (43046)	10/15/1999 10:35:00 AM
From: Giraffe	Read Replies (1) \| Respond to of 116767

Friday October 15, 10:02 am Eastern Time Monster PPI spooks markets, stokes inflation fears By Jonathan Stempel NEW YORK, Oct 15 (Reuters) - A much stronger-than-expected upward spike in September U.S. wholesale prices on Friday spooked inflation-wary markets which were already on edge over comments by Federal Reserve chairman Alan Greenspan the previous day. The Labor Department reported the Producer Price Index rose 1.1 percent, more than double the already hefty 0.5 percent gain Wall Street economists had forecast. The core rate, which excludes volatile food and energy prices, rose 0.8 percent versus a forecast of a 0.4 percent gain. The yield of the 30-year U.S. Treasury bond rose to a fresh two-year high of 6.37 percent as the price fell 3/4 point. Treasuries later erased the losses after data showing weaker-than-expected industrial production in September. At 0943 EDT/1343 GMT, the long bond was up 15/32 to yield 6.29 percent. Stocks saw sharp losses at the open. At 0951 EDT/1351 GMT, the Dow Jones Industrial Average was down over 230 points. The dollar extended overnight losses against major currencies, sending the euro to a seven-month high against the greenback above $1.09. ``It's an unfriendly report. If you work hard enough, you can get it down to a reasonably benign number but you really have to do a lot of work,' said Ethan Harris, an economist at Lehman Brothers Inc. ``A lot of these things will probably reverse in the next months,' he said. ``But still, when you have to do that much work to make it look benign, the suspicion is the Fed may have to do something.' Even before the PPI number hit computer screens, markets were already jittery over inflation because of rising commodity prices and a weakening dollar against a backdrop of strong U.S. growth and very tight labor markets. There was also heightened uncertainty over whether the Fed would raise interest rates at the next Federal Open Market Committee (FOMC) meeting on Nov. 16 after the central bank announced last week it was leaning toward a rate hike as its next move. ``The sentiment that is pushing the Treasury market down after the Fed failed to tighten last week could be that the Fed is falling behind the curve on the inflation front,' said Kevin Flanagan, money market economist at Morgan Stanley, Dean Witter & Co. ``It's going to be tough here for the Treasury market.' Some economists said a weighty 8.4 percent surge in tobacco prices was responsible for part of the surprising strength in PPI and that cushioned the blow a bit for Treasuries which saw it as a one-time event. Prices of passenger cars also surged in September, by 2.0 percent. If tobacco and cars were subtracted from the core rate, it would have only risen 0.1 percent. ``If there is any silver lining, it's that the forces that pushed core PPI at the finished level won't be repeated,' Flanagan said. ``It's almost as if you're yelling down the well that the forces that are pushing this up are temporary. But you've boosted the probability of a rate hike on Nov. 16.' Before the report's release, the stock market was on edge after Greenspan warned banks to set aside more money as insurance against a big financial market downturn in a sign that he is worried about a potential bubble in equity prices. ``The bond market is gearing up for a tightening and the stock market is looking for a reason to sell off,' said Phil Hill, an economist at Briefing.com.