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FINANCIAL MARKETS : Profit Takers Clip 28 Off Dow as Yields Rise

February 16, 1996|From Times Staff and Wire Reports

Blue-chip stocks closed lower for a second day Thursday as long-term bond yields jumped.

The broad market was mixed, however, with smaller stocks generally gaining ground.

The Dow Jones industrials dropped 28.18 points to 5,551.37 after falling 21.68 points on Wednesday, which ended a seven-session winning streak.

Profit takers found the excuse they needed Thursday as bond yields surged on the heels of fresh data suggesting that the economy may be picking up.

The government's report on December factory orders was stronger than expected, and a separate report showed that wholesalers' inventories of goods fell in December at the fastest rate in nine years, which could portend an increase in manufacturing activity to restock shelves.

Long-term bond yields plunged late last year on expectations that the economy would remain weak this year, slowing demand for credit and allowing the Federal Reserve Board to cut short-term rates sharply.

The Fed did cut short-term rates Jan. 31. But analysts say the recent upward pressure on long-term yields suggests that bond traders are losing hope for additional Fed cuts. "The bond market is not prepared for signs of strength" in the economy, said Robert McCool, a trader at First Chicago Capital.

Many analysts, however, argue that the economy remains more vulnerable to recession than to a sharp rebound and that any rise in bond yields will be short-lived.

While the bond market's jitters worsened Thursday, the stock market was only mildly affected. Falling stocks topped winners by just 1,226 to 1,110 on the New York Stock Exchange in comparatively moderate trading. And although blue-chip indexes fell with the Dow, the Nasdaq composite index of mostly smaller stocks added 2.51 points to 1,090.45.

Many Wall Streeters say stocks are vulnerable to more profit taking in the short run. But John Shaughnessy, research chief at Advest Inc., noted that "the driving force [behind this year's rally] continues to be strong corporate earnings and money flowing into the market," and that may not reverse soon.

Among Thursday's highlights:

* Auto stocks fell as some investors worried that the companies may cut production soon because of slow sales. GM dropped 2 3/8 to 50 1/8, Ford slid 3/4 to 30 1/4 and Chrysler sank 2 3/8 to 53 5/8.

* Among blue chips, profit takers continued to hit some recent leaders, including Merck, down 1 to 69 5/8; Sears, off 1 7/8 to 44 7/8; and Philip Morris, off 1 1/2 to 96 3/8.

* Telephone stocks also tumbled again, with Ameritech diving 2 1/8 to 60 1/2 and GTE down 2 1/4 to 45 3/4.

* IBM bucked the trend, jumping 3 3/8 to 117 5/8. But most tech stocks were lower.

* Royal Dutch Petroleum shed 7 1/4 to 138 1/4 after reporting disappointing fourth-quarter earnings. But most other energy stocks were higher on the day.

* Some financial issues also continued to surge, including SunAmerica, up 1 3/4 to 56 3/8, and T. Rowe Price, up 2 to 52 1/2.

Overseas, London's FTSE-100 index rose 34.8 points to 3,779.8, while Tokyo's 225-share Nikkei average dropped 57.40 points to 20,886.19. Hong Kong stocks soared, with the blue-chip Hang Seng index rising 107.35 points to 11,471.81.

In Mexico City, stocks fell as concern about higher interest rates and political turmoil offset indications that the nation's economy did better than expected in the fourth quarter of 1995. The Bolsa index fell 24.88 points, or 0.84%, to 2946.37.

The dollar ended mixed after a volatile session Thursday, hit by speculation about higher Japanese interest rates, the latest economic data and declines in the stock and bond markets.

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