Stocks Drift Lower, but Airline Shares Get a Lift : Market Overview

The stock market slipped for a third straight day, but a surge in airline shares stemmed the decline.

* The Federal Reserve banking system gave a slight lift to an otherwise lethargic Treasury market by buying government notes, sending Treasury bond yields modestly lower.

* Waves of intervention by the Bank of Japan lifted the dollar from historic lows against the yen, inspiring a broader advance that spilled over into key European currencies.

Stocks

Traders said the spark for the rally in airlines was the news that American Airlines’ parent, AMR Corp., posted first-quarter results exceeding Wall Street expectations.

AMR’s report showed sharply reduced losses, to $22 million from $452 million last year. Analysts had expected more than twice that much in losses. AMR’s stock shot up 6, to 71 1/4, in heavy trading.

At the close, the Dow Jones average was down 4.05 points at 3,439.44. In the broader market, declining issues narrowly outnumbered advancers on the New York Stock Exchange. Volume on the floor of the Big Board came to 287.3 million shares, down from the previous day’s 317.99 million.

Small and medium-sized stocks also found favor in a day marked by investors juggling portfolios during the quarterly-earnings report period.

Stock prices are high by historical standards, however, and money managers are reluctant to invest further in the market, said James Melcher, founder and president of Balestra Capital.

Instead, first-quarter earnings reports moved stocks Wednesday. Investors spent the day shifting funds among stock groups, analysts said, leaving prices bouncing higher, then lower.

Among the market highlights:

* Airline shares surged after AMR, the parent of American Airlines, announced a smaller-than-expected loss. Delta Air Lines rose 2 3/4 to 59 1/4 and UAL, the parent of United Airlines, jumped 9 5/8 to 149 5/8.

The airlines have ridden a roller coaster recently. Their shares rose last week on a sense that restructuring was paying off, then fell earlier this week on news of a new fare war. Airlines have lost more than $8 billion over the last three years.

The strength in airlines stocks lifted the Dow transportation average by 20.75 points, to 1,665.76.

In other earnings news, American Telephone & Telegraph, Compaq Computer, McDonnell Douglas and General Dynamics all posted solid first-quarter results.

* While McDonnell Douglas rose 7/8 to 61 1/8 and General Dynamics rose 1 3/8 to 97 1/8, Compaq fell 1 7/8 to 49 1/4 and AT&T; dropped 1/2 to 57 3/8.

* Wal-Mart rose 1/4 to 26 5/8, PepsiCo rose 1 1/8 to 37 1/2 and Coca-Cola rose 1/2 to 39. Cott Corp., the Canadian maker of private-label soft drinks, fell 2 3/8 to 29 5/8 in NASDAQ trading.

* Jostens, which makes class rings and yearbooks, fell 7 1/8 to 19 after posting lower third-quarter earnings and forecasting disappointing results for the year.

* Chrysler fell for a third straight day after posting earnings earlier this week. The stock was down 3/8 at 39 7/8. Other auto shares also fell.

* Polaroid rose 3 3/8 to 32 3/8 after good news in the company’s first-quarter earnings report.

Stock markets abroad were mixed. Share prices slipped in Frankfurt with the 30-share DAX average ending down 20.24 at 1,666.87. London’s Financial Times 100-share average closed up 13.5 points at 2,869.6 and Tokyo’s 225-share Nikkei average fell 55.42 points to 19,773.01.

Credit

The Federal Reserve’s purchase created more demand in a lightly traded government securities market that for the last week has been vainly searching for factors to push bond yields out of their current narrow trading range.

The 30-year Treasury bond yield slipped to 6.74% from 6.75% late Thursday. Its price, which moves in the opposite direction, which was up about 1/4 point earlier in the day, and ended up about 1/32, or 31 cents per $1,000 in face value.

Participants said the Fed’s purchase of three-, five- and seven-year notes mostly boosted the market’s intermediate end.

David Ader, a market strategist with Technical Data in Boston, said such purchases by the central bank typically involve $250 million, perhaps as much as $350 million.

“In an otherwise quiet market, word that the Fed is buying does have an impact,� Ader said.

The Federal Reserve usually does not release information about its purchases and sales of government securities, but one senior trader speculated that the Fed may have bought the securities for the Bank of Japan, which has been seeking to reinvest dollars bought while intervening on foreign exchange markets.

The federal funds rate, the interest on overnight loans between banks, was 3.063%, up from 2.813% late Tuesday.

Other Markets

As many participants had expected, the Japanese central bank’s tolerance for a cheaper dollar was tested when the U.S. currency broke below the crucial 110-yen level in Tokyo. The Bank of Japan was widely reported to have intervened three times, and the dollar managed to touch 111 yen during the New York session.

The rally helped the dollar advance against the German mark, although a report of a sharply larger money supply in Germany seemed to diminish chances for a supportive cut in German interest rates.

The dollar closed at 110.71 Japanese yen, up from late Tuesday’s 110.55 in New York. The greenback settled at 1.600 marks, from 1.597 on Tuesday. The British pound was quoted at $1.54, below late Tuesday’s $1.5470.

Elsewhere, gold slipped in New York after sharper declines overseas. On the Commodity Exchange in New York, gold for current delivery fell 40 cents an ounce to $339.50; silver fell 2 cents an ounce to settle at $3.904.

On the New York Mercantile Exchange, light, sweet crude oil for June delivery rose 5 cents, to $20.37 a barrel.

Market Roundup, D8