Wall Street stocks plunged Wednesday after a grim-faced Secretary of State James A. Baker III said his talks with Iraqi Foreign Minister Tarik Aziz had failed to produce progress toward a settlement of the Persian Gulf crisis.
The Dow Jones industrial average tumbled more than 80 points in a matter of minutes, erasing a morning rally of more than 40 points that had been based on early optimism about the talks.
The 30-share index closed down 39.11, or 1.6%, at 2,470.30, its sixth straight day of losses. The blue chip index has fallen every trading session so far this year, for a total drop of nearly 164 points.
Volume on the New York Stock Exchange was a heavy 191.1 million shares, compared to 143.4 million Tuesday. Losing issues outnumbered gainers 948 to 577.
The market's abrupt about-face was dramatic. "The market just literally stopped during the (Baker) press conference," said Frank Baxter, president of brokerage Jefferies & Co. in Los Angeles. "Then, you could see peoples' faces drop here when it was clear that nothing had been accomplished."
But analysts noted that, considering how inevitable war now appears, there was no panic selling on Wednesday. Instead, "The market is in paralysis," Baxter said.
That suggests that most investors believe that stock prices already factor-in the potential economic ramifications of war, and that the selling is taking place only on the market's fringes.
In fact, the Dow fell the most of any major index on Wednesday. The S&P 500 index lost 1.1%. The NASDAQ over-the-counter composite fell just 0.4%.
Michael Metz, strategist at Oppenheimer & Co., suggested that the market may even surprise the pessimists with a rally soon because prices already reflect low expectations.
"Most investors who are terrified--and rightfully so--of the external environment, have liquidated (positions) to the point where they are reasonably comfortable," Metz said.
But experts agree that Wall Street now is betting on a quick U.S. victory over Iraq--and that any scenario other than a short war could wreak havoc with stocks. (Related stories, A1, D1.)
Among the market highlights:
* The Dow was pulled down by heavy losses in Du Pont, off 1 1/2 to 33 1/8; United Technologies, down 1 3/4 to 43 1/4; Woolworth, off 1 1/2 to 25 7/8, and Primerica, off 1 to 21 7/8.
* Some of the day's biggest losers were drug issues, as investors continued to bail out of one of the few winning stock groups of 1990. Bristol Myers fell 1 1/8 to 61 3/8, Johnson & Johnson lost 1 5/8 to 65 5/8, Upjohn dropped 3/4 to 35 5/8 and Immunex gave up 1 1/4 to 34 1/2.
* Oil and oil-service stocks also were broadly lower, even as oil prices soared. Baker Hughes tumbled 1 1/8 to 22 3/4, Oceaneering fell 3/4 to 9, Schlumberger dropped 1 1/8 to 51 7/8 and Exxon lost 7/8 to 49 7/8.
* Defense contractors plunged, as the negative implications of huge Pentagon contract cancellation with McDonnell Douglas and General Dynamics outweighed any perceived benefits from war. McDonnell slumped 3 1/4 to 28 after collapsing 7 1/2 Tuesday. General Dynamics fell 1 1/4 to 21 1/4, Rockwell slid 1 1/2 to 23 1/4 and Loral lost 1 1/8 to 32 1/4.
* Apple Computer was one of the few market bright spots. It jumped 2 to 45 1/4 after detailing the huge success of its new computer line. Elsewhere, Sequent Computer plunged 5 3/4 to 11 1/2 after forecasting disappointing earnings.
* Castle & Cooke slipped 1/4 to 28 1/4. The firm said it negotiated an $800-million four-year credit pact with banks, replacing short-term credit lines.
* Blockbuster Entertainment surged 2 1/8 to 25 1/2. It was added to S&P 500-stock composite index, touching off buying by index funds set up to duplicate the performance of the index.
In London, share prices closed firm but below the day's best levels on hopes that the meeting between the United States and Iraq would produce a diplomatic solution. The Financial Times-Stock Exchange 100 index rose 29 to close at 2,128.9.
In Frankfurt, German shares jumped 1.6% in extremely nervous trading, lifted almost entirely by speculation fueled by the length of the Geneva foreign ministerial meeting. The 30-share DAX index climbed 21.21 to 1,375.16.
In Tokyo, stocks closed firmer after a day of sluggish trading before the Iraq-U.S. meeting. The Nikkei average ended up 71.43 at 22,969.27. At midday today, the Nikkei was down 153.93 points.
CREDIT Bond Prices Tumble on Baker Statement Bond prices plunged a total 2.5 points in intraday trading Wednesday in a market initially charged by hopes of peace but finally deflated by pessimism over war in the Middle East.
The Treasury's bellwether 30-year bond finished down 13/16 point, or $8.13 per $1,000 in face amount, at Wednesday's closing. Its yield jumped to 8.45% from 8.38% late Tuesday.