Profit Worries Spark Blue-Chip Rout

Blue-chip stocks took a dizzying plunge Friday, sparked by a weakening dollar and worries about corporate earnings. But bond prices recovered after an early fall.

The dollar fell against major currencies amid speculation that Germany’s central bank may raise interest rates soon to defend the mark.

The dollar tumbled to a three-week low against the mark and was further affected by falling stocks.

“The Bundesbank is obviously concerned about the mark’s weakness,” said Dom Presa, vice president of foreign exchange trading at Dresdner Bank. “Asset markets in the U.S. also appear to be on the softer side. That means a weaker dollar.”

The U.S. currency fell to 1.8201 marks in late New York trading from 1.8410 on Thursday. The dollar fell to 117.90 Japanese yen from 117.94.

The Bundesbank began hinting late last month that it might lift rates to boost the mark, which has fallen more than 15% this year against the dollar. The bank’s move on Tuesday to set rates for just one week, instead of the usual two, fueled speculation that the Bundesbank could act as early as this coming Tuesday, when it calls for bids in its securities-repurchase auction.

Higher German rates would make mark-denominated deposits and bonds more attractive.

Meanwhile, the U.S. stock market also suffered its worst week ever, including the weekly trading period that included the so-called Black Monday stock market crash of Oct. 19, 1987. On that day, the Dow Jones industrial average sank 508 points, or 23%, to 1,738.74.

The Dow on Friday tumbled 247.37 points, or 3.1%, to 7,694.66, its second-biggest point drop ever, putting the index at its lowest close since June. The loss of 336.56 points for the week was the worst in history, though in percentage terms, the sell-off was not among the top 10 weekly declines.

Beyond the Dow, broader market indexes also tumbled.

Declining issues outnumbered advancers by a nearly 3-1 margin

on the New York Stock Exchange in heavy trading.

The Standard & Poor’s 500-stock list was down 23.96 points to 900.81, and the NYSE composite index fell 10.56 points to 469.10.

The Nasdaq composite index was down 24.66 points to 1,562.03, and the American Stock Exchange composite index was off 4.88 points to 635.51.

Smaller stocks escaped relatively unscathed. The Russell 2,000, considered the benchmark for small-stock performance, fell 0.8%.

Traders were rattled after Gillette told analysts it expects disappointing 1997 earnings. On the heels of a similar warning from Coca-Cola earlier this month, the news sparked considerable worry about corporate America’s future profits.

Adding to the day’s volatility was the “double witching” expiration of options on stocks and stock indexes.

U.S. bonds were little changed, overcoming early losses amid expectations that subdued inflation will keep Federal Reserve Board officials from raising interest rates when they meet Tuesday.

Short-term securities such as three-month bills rose, as the slide in stocks prompted some investors to seek a safer haven.

“The short end is getting a little extra play,” said David Capurro of Franklin Resources in San Mateo, Calif. “We’re seeing a little bit of a flight out of the volatility of the equity markets.”

The rate on the three-month Treasury bill fell to 5.11%. The yield on the two-year note fell to 5.81%. Trading volume in the bill market was 40% above average for a Friday in the third quarter of 1996, according to GovPX Inc., a bond-pricing service.

The yield on the benchmark 30-year Treasury bond was little changed from Thursday, at 6.54%.

Among Friday’s highlights:

* Gillette fell $4.19 to $85.88, triggering a slump in “Nifty Fifty” stocks, prized for their consistent earnings. Forty-eight of the 50 stocks in the Morgan Stanley multinational index fell. The index tracks companies known as the “New Nifty Fifty”--large companies expected to deliver consistently growing profits.

Of the Nifty Fifty, Coca-Cola dropped $1.31 to $58.75, GE fell $4 to $62.75, Intel slipped $3.75 to $92.13, and Microsoft lost $3.38 to $132.88.

* Other movers included Pep Boys (Manny, Moe & Jack), off $6.06 to $27 after reporting weak second-quarter earnings, and ITT, off $1.06 to $62.81 after it rejected a sweetened $11.5-billion hostile takeover offer from Hilton Hotels. Hilton fell 44 cents to $29.75.

* Of the few gainers, Geron soared $7.50 to $14 after the company said it cloned an enzyme that could lead to new cancer treatments.

Market Roundup, D4

MAIN STORY: A1

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The Correction, So Far

Blue-chip stocks have led the market’s pullback over the last seven sessions, while smaller stocks have held up far better. How major stock indexes fared on Friday, and their declines so far versus their recent record highs:

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Friday Friday Pct. Pct. drop Index close change change from peak Dow industrials 7,694.66 -247.37 -3.1% -6.8% S&P; 500 900.81 -23.96 -2.6 -6.2 NYSE composite 469.10 -10.56 -2.2 -5.6 Nasdaq composite 1,562.03 -24.66 -1.6 -4.2 Dow transports 2,864.96 -30.57 -1.1 -4.8 S&P; mid-cap 307.36 -3.15 -1.0 -3.7 S&P; small-cap 169.93 -1.58 -0.9 -2.9 Russell 2,000 408.58 -3.29 -0.8 -2.9

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Source: Times research