Dow Falls 77 as Blue Chips Bear Brunt of Profit-Taking

Investors continued to ease out of blue-chip shares Tuesday, even though bond yields dipped and the weaker dollar held out the hope of better U.S. multinational-company profits.

The Dow Jones industrials fell 77.35 points, or 1%, to 7,782.22, in a decline that started early on and, as usual, was worsened late in the day by computerized trading.

The Dow’s four-session losing streak has sliced about 240 points, or 3%, from the index.

In the broad market, however, stocks were only modestly lower. And the Russell 2,000 index of smaller stocks inched up, adding 0.22 point to 418.31.

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

Still, analysts said it was disturbing that stocks couldn’t do better, with bond yields closing lower despite a surge early in the day.

The yield on the 30-year Treasury bond hit 6.70% in the morning, as new economic data pointed to continued strength.

But buyers flocked to bonds later in the day, and the 30-year yield ended at 6.64%, down from 6.67% on Monday. Bond traders said investors were heartened by strong demand for the Treasury’s new two-year notes auctioned Tuesday. The average yield on the notes was 5.99%.

Meanwhile, the dollar continued to dive against the German mark, falling to 1.799 marks from 1.819 on Monday, on growing fears that German interest rates will rise soon. (Market Beat, D1.)

Ironically, analysts noted that the suddenly weaker dollar could be good for blue-chip multinational firms, by automatically boosting foreign profits when repatriated.

But a weaker dollar also raises the risk that foreign investors will shy away from investing in U.S. stocks and bonds rather than risk devaluation of their assets.

Among Tuesday’s highlights:

* The Dow’s biggest decliners came from an assortment of industries. Sears Roebuck fell $2.06 to $57.50, GM fell $1.19 to $65 and IBM dropped $1.69 to $103.31.

* Drug stocks were broadly lower. Merck tumbled $1.88 to $91.63, Warner Lambert dove $6.06 to $126 and Lilly sank $2.75 to $104.75.

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

* Tech shares were mixed. Westell Technologies jumped $3 to $24.88 on rumors about strong sales, and computer networker Shiva gained $2.81 to $15.88 on rumors of a takeover bid.

But Compaq fell $1.75 to $65.38 and Intel was off $1.50 to $92.69.

* On the plus side, oil services firms were broadly higher. Global Marine gained $1.63 to $28.50 and Western Atlas jumped $1.94 to $78.94.

* Among Southland issues, Tejon Ranch soared $7.06 to $39.75 following a similar gain Monday after a published report saying its stock was undervalued.

In foreign trading, European markets slumped on fears of higher interest rates.

Southeast Asia’s beleaguered markets were mixed. Thailand’s benchmark SET index closed down 4.12 points, or 0.8%, at 525.49.

But Indonesia’s main index rose on hopes the central bank’s tight money policy--designed to bolster the rupiah--may be relaxed soon. The Jakarta composite index rose 1.1% to 560.5.

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.”

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Market Roundup, D5