Dow Up 16; Dollar Rally Continues : Market Overview

Stocks closed mixed as a bluechip industrial rally failed to spread to smaller stocks. The market also faced another batch of warnings about disappointing second-quarter corporate earnings.

* The dollar continued to rocket against the yen as Japan’s political crisis deepened. The greenback also rose against the German mark.

* Long-term bond yields sagged to six-week lows, helped by positive sentiment toward President Clinton’s deficit-reduction plan.

Stocks

Blue chip issues bounced back from Friday’s late selloff, which was tied to the quarterly expiration of key stock index futures and options contracts.

The Dow industrials, down 27.12 points Friday, gained 16.05 points to 3,510.82 on Monday.

On the New York Stock Exchange, winners topped losers 11 to 8 on typically slow Monday volume of 223.7 million shares.

But the NASDAQ market of smaller stocks was weak; the composite index slipped 0.85 point to 688.74.

Analysts said big-name stocks may have attracted foreign buyers because of the dollar’s powerful ascent. A rising dollar automatically causes dollar-denominated assets held by foreigners to appreciate in value.

Overall, the strong dollar “adds an element of support for the stock market,� said Alfred Goldman, analyst at A.G. Edwards & Sons.

Some traders said they were impressed with the market’s ability to weather another flurry of corporate announcements warning of disappointing second-quarter earnings. Such “pre-announcements� have become commonplace at the end of each quarter.

Meanwhile, the NYSE announced that “short� interest reached a record 1.04 billion shares as of June 15, up from 994 million shares in mid-May. In a short sale, a trader borrows stock and sells it, planning to pay back the loan later with what the trader hopes will be cheaper shares.

Thus, short interest represents a bet on declining stock prices. While the June figure is a measure of traders’ growing bearishness, high short interest also can be bullish for the market: If stock prices rise rather than fall, short sellers can rush in to buy shares, to close out their positions. That can spark a new rally.

Among Monday’s highlights:

* Some key industrials paced the blue-chip rally, as they have for much of this year. GM rose 1 1/8 to 42 7/8 after its chief made bullish comments about car and truck sales trends. Ford added 1 1/8 to 51 1/8 and Chrysler was up 3/4 to 46 3/8.

Among other industrials, Eaton surged 2 7/8 to 92 1/8, Superior Industries soared 2 3/4 to 52 5/8, Inland Steel gained 7/8 to 26 5/8, Quanex was up 5/8 to 15 5/8, Timken added 7/8 to 33 7/8 and Briggs & Stratton leaped 2 1/2 to 63 7/8.

* Another major industrial, Caterpillar, eased 1 1/2 to 75 3/4 after trading as low as 71 7/8. The company denied rumors that its foreign sales had weakened.

* On the downside, Nike plummeted 4 1/8 to 57 7/8, continuing Friday’s slump after the firm warned of slowing U.S. and international sales of athletic shoes. Also falling were Reebok, off 3/8 to 29 3/8, and L.A. Gear, down 1/2 to 11 5/8.

* Among Monday’s earnings pre-announcers, Springs Industries tumbled 9 1/2 to 33 3/4 after it forecast second-quarter results well under expectations. Springs, a maker of sheets and other home textiles, said orders have slumped since April.

Late in the day, computer disk-drive maker Micropolis warned of a possible second-quarter loss, and Outboard Marine said weak European sales will hurt its quarterly results. Micropolis sank 1/2 to 6 1/8 and Outboard added 1/8 to 18 3/8, though it is expected to slide today.

* In a positive surprise development, personal-products maker Tambrands rocketed 6 1/8 to 46 1/4 on news reports that its board is seeking to sell the troubled company, possibly to Johnson & Johnson. J&J; eased 3/8 to 42 1/2.

* Among Southland issues, SunAmerica zoomed 2 1/8 to 32 1/4 after brokerage Goldman Sachs added the financial services firm to its recommended list. Road construction firm Kasler added 3/8 to 7 5/8 after a director opposing the firm’s proposed merger quit the board.

Overseas, London’s FTSE-100 index surged 24.0 points to 2,903.4. Frankfurt’s DAX average added 2.92 points to 1,689.82.

Currency

The dollar’s astounding turnaround continued, as traders fleeing the yen and the German mark rushed into the greenback.

The dollar surged to 110.65 yen in New York, up from Friday’s 109.75. Against the mark, the dollar hit 1.688 versus 1.681 on Friday.

Just a few weeks ago the dollar was hitting postwar lows against the yen. But with the fall of Japan’s government last week, the extraordinary political uncertainty is sending traders running from the yen.

Analysts also said that Germany’s poor economic outlook overshadowed cautionary words on Monday by a Bundesbank official about how fast interest rates there can be expected to fall.

Germany’s Bundesbank has long said that rapid growth in the nation’s money supply precluded anything but painfully slow interest-rate cuts. Bundesbank council member Wilhelm Gaddum reiterated that view on Monday.

Nonetheless, many traders expect the dollar’s momentum against the mark to continue.

Other Markets

Interest rates fell across the board, helped by the dollar’s surge. But bond trading was light.

The yield on the Treasury’s 30-year bond eased to 6.78% from Friday’s 6.80%.

Traders said many investors continue to be optimistic about Senate passage of President Clinton’s plan to slash $500 billion from the federal deficit over five years.

In commodities trading, near-term gold on New York’s Comex fell $1.30 an ounce to $370.00. Silver eased 0.3 cent to $4.28.

On the New York Merc, light, sweet crude oil for July lost 5 cents to $18.62 a barrel.

Market Roundup, D8