Dow Off 77 in Light Session; Yields Fall, Dollar Weakens

Blue-chip stocks fell again Tuesday as the dollar weakened and investors continued to take profits after the market’s recent rally. Bond yields fell.

The Dow Jones industrial average fell 77.35 points to 7,782.22. The Dow’s four-session losing streak has sliced about 240 points, or 3%, from the blue-chip index.

Although several broad-market measures also fell Tuesday, declining issues barely outnumbered advancers as investors hunted for better values among smaller-company shares.

“Once again, it’s the Dow versus the market. The blue chips are weak but the broad market is OK,” said Larry Wachtel, market analyst at Prudential Securities. “The biggest success in the market has been in the ‘nifty-fifty’ blue chips, and that’s where the correction is taking place.”

Noting that volume was fairly light again Tuesday, Wachtel and other analysts cautioned against deriving too much meaning from the market’s late-summer moves.

The Standard & Poor’s 500-stock list fell 7.14 points to 913.02, the New York Stock Exchange composite index fell 2.67 points to 475.36, and the Nasdaq composite index fell 10.27 points to 1,591.30.

But the Russell 2,000 index of smaller companies rose 0.22 point to 418.31.

“You’re looking at a ‘last-days-of-August’ market where no one’s around and slight changes in sentiment seem to have a major impact on prices,” said Ronald J. Hill, investment strategist at Brown Bros. Harriman & Co.

Bonds slipped in the morning after the latest in a series of reports suggesting a renewed economic vigor that could aggravate inflationary pressures.

Reports from two private research groups showed gains in retail sales and consumer confidence. The government, meanwhile, reported that manufacturing activity continued at a healthy pace, and a realty group reported that sales of existing homes rose in July.

The data helped fuel more worries that the economy may be re-accelerating too quickly for the Federal Reserve Board’s taste.

For the most part, though, analysts have remained fairly confident about the outlook for tame inflation and steady economic growth.

Bond prices recovered by day’s end. As the price on the 30-year Treasury rose, its yield edged lower to 6.64% from Monday’s 6.67%.

The recent data “may be creating some near-term jitters, but these jitters will be alleviated to some extent as we continue to get good-looking inflation numbers,” said James Solloway, director of research at Argus Research.

Among Tuesday’s highlights:

* The Dow’s biggest decliners came from an assortment of industries. Sears Roebuck fell $2.06 to $57.50, Merck fell $1.88 to $91.63, Alcoa fell 69 cents to $85.75 and IBM fell $1.69 to $103.31.

* Financial shares sank despite the day’s improvement in interest rates, which is usually seen as a benefit for lenders. Travelers Group fell $1.38 to $64.88, American Express fell $1.31 to $79.75 and J.P. Morgan fell $1.13 to $110.38.

* Gainers on the Russell small-cap index included Westell Technologies, up $3 to $24.88, and Shiva, up $2.81 to $15.88.

* Among individual issues, Andrea Electronics surged $5.75 to $34 after signing a contract with IBM. Lebec, Calif.-based Tejon Ranch soared $7.06 to $39.75 following a similar gain on Monday after a published report saying its stock was undervalued.

In currency trading, the dollar fell to 1.7975 German marks in New York from 1.8196 on Monday, amid speculation that the German central bank will eventually have to raise interest rates to cool inflation pressures at home. Higher German rates could attract investors from U.S. financial markets.

In commodities trading, cocoa prices rose to their highest level in eight weeks amid growing concern that the El Nino weather pattern could put a severe dent in world production.

“All the El Nino stories are coming together,” said Smith Barney analyst Walt Spilka. “Because of potential problems in Indonesia, Malaysia, [Papua] New Guinea, Ecuador and Brazil, you could see 200,000 to 300,000 tons in losses.”

Cocoa for December delivery rose $38 to $1,653 a ton at New York’s Coffee, Sugar and Cocoa Exchange, the highest close since July 2.

Overseas, Tokyo’s Nikkei stock average rose 0.9%, Frankfurt’s DAX index fell 2.8% and London’s FTSE-100 fell 0.3%.

Market Roundup, D5