Dow Index Drops 25.41 in Late Trading : Market Overview

Highlights of Tuesday’s market activity, compiled from Times staff and wire reports:

* Blue chip stocks fell sharply as futures-related selling and mounting worries about the economy produced a late-afternoon drop. The Dow Jones industrial average fell 25.41 to 3,329.49.

* In the credit markets, Treasury bond prices rose Tuesday despite economic news that pointed toward a recovery.

* The dollar closed lower against major currencies as traders remained concerned about the pace of U.S. economic recovery.

Stocks

After drifting for most of the day on modest volume, the Dow dropped sharply in the last half-hour of trading after a heavy round of selling linked to computerized trading, dealers said.

Declining issues outnumbered advances by about 11 to 9 on the New York Stock Exchange, on moderate Big Board volume of 194.40 million shares, up from 164.08 million in the previous session.

Although the government reported a sharp rebound in housing starts and a fourth straight rise in industrial production in May, investors are nervous that the slow pace of recovery will sap corporate earnings.

Traders said that although there is a sense in the market that the economy is slowly improving, investors are apprehensive about the recovery’s strength.

“There’s no conviction, no leadership in the market,” said Tom Luker, senior vice president with Nikko Securities Co. International Inc. “Investors are sitting on the sidelines, and that makes the market more volatile.”

The new economic data released Tuesday didn’t lend much direction to the market, said Jon Groveman, president of Ladenburg, Thalmann & Co.

The Commerce Department said housing starts jumped a better than expected 11% in May, partially recovering from a 17.3% fall in April. The gain was the largest in more than a year. Economists had expected an increase of about half that amount.

But the same report showed building permits, which forecast future construction activity, fell 0.7% in May, creating uncertainty about future housing activity.

In another report, the Federal Reserve said the nation’s factories, mines and utilities boosted production by 0.6% in May, marking the first four-month string of advances since last summer. That was close to expectations.

“The data (does not) show a booming economy,” said Jack Solomon, a market analyst with Bear, Stearns & Co. “They show we’re just chugging along.”

Among the market highlights:

* In the technology sector, Compaq lost 2 1/2 to 25. Alex. Brown cut its rating to source of funds from hold and lowered earnings estimates.

* Goldman Sachs removed Hewlett-Packard from its recommended list. Shares of the company fell 2 to 68 1/2.

* IBM fell 1 to 93 1/8, Apple plunged 3 3/8 to 49 1/4, AST Research fell 5/8 to 15 1/8, and Zeos International dropped 3/8 to 6 1/4.

* The most actively traded NYSE issue for the second day was Telefonos de Mexico, down 1 at 48 1/2, mostly on concerns that company shares held by unionized employees will be dumped for sale into the market.

* Among other actively traded issues, Citicorp rose 1/4 to 20 5/8. Philip Morris fell 2 5/8 to 70 3/8, losing ground for a second day on a criminal probe by federal prosecutors into whether tobacco companies misled the public about the dangers of smoking.

* Arctic Alaska Fisheries was up 4 3/4 at 11 5/8 after Tyson Foods said it would buy the company.

* Time Warner rose 2 1/8 to 109. Prudential initiated coverage of it with a buy rating.

In overseas trading, stocks ended sharply higher in London, drawing support from technical factors, but equity strategists said market fundamentals were little changed. The Financial Times 100-share average added 22.7 points to close at 2,616.3.

Shares closed slightly firmer in Frankfurt, with the 30-share DAX average ending 5.20 points higher at 1,779.10.

Meanwhile, stocks ended virtually unchanged in Tokyo, with the 225-share Nikkei average 0.30 points higher at 16,953.53.

Credit

The government reports showing strength in the housing and manufacturing sectors had little affect on bond prices. Good economic news usually pushes down bond prices because it reduces the prospects for lower interest rates.

The price of the Treasury’s main 30-year bond gained 7/32 point, or $2.19 per $1,000 in face amount. Its yield, which falls when prices rise, declined to 7.83% from from 7.85% late Monday. Trading was light.

Anthony Chan, senior economist at Barclays de Zoete Wedd Securities Inc., said the industrial production report prompted some buying because it was in line with bond market expectations and the April figure was revised downward.

The numbers initially sent bond prices lower, but the market rebounded.

The federal funds rate, the interest on overnight loans between banks, was quoted at 3.625%, down from 3.875% late Monday.

Currency

Currency traders said the dollar initially reacted favorably to the housing starts and industrial production reports.

“The market continues to be disappointed with U.S. economic growth,” said Karen Kluge, a currency trader with Credit Suisse in New York.

In addition, she said, higher interest rates in Europe make European currencies more attractive than the dollar.

In New York, the dollar closed at 1.564 German marks and 126.50 Japanese yen, down from the previous session’s 1.571 marks and 126.80 yen.

The British pound rose to $1.865 from Monday’s $1.857.

Commodities

Cotton futures prices dropped sharply on the New York Cotton Exchange as the sun began drying the soggy fields of Texas.

On other commodity markets, grains and soybeans were mixed; cocoa made a new 20-year low; precious metals fell; livestock and meat futures were mixed, and oil futures retreated.

Cotton for July delivery plunged 1.49 cents to 60.91 cents a pound. The contract had gained more than 4 cents last week as rain soaked fields and threatened yield losses in the high plains of Texas, the nation’s largest cotton-producing state.

Sagging platinum prices on the New York Mercantile Exchange prompted profit taking in the gold and silver markets on New York’s Commodity Exchange.

Platinum for July delivery fell $3.50 to $364.90 an ounce; June gold fell 90 cents to $342.20 an ounce, and July silver fell 3.5 cents to $4.103 an ounce.

Crude oil futures fell slightly on the New York Mercantile Exchange on confirmation that Iraq and the United Nations will resume talks Friday on lifting U.N. sanctions against Iraq and allowing a sale of Iraqi oil. Light, sweet crude oil for July delivery fell 6 cents to $22.30 a barrel.