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Tobacco Stocks Fall on News of Verdict

August 10, 1996|From Times Wire Services

A late-afternoon verdict against a leading tobacco maker pulled most stock measures lower Friday, erasing slim gains on a tame inflation report that sent interest rates lower in the bond market.

The Dow Jones industrial average fell 32.18 points to 5,681.31. But most of the decline came in the last half-hour as Philip Morris shares plunged on news of a Florida jury's $750,000 damage award to a lung cancer victim.

The verdict against Brown & Williamson Tobacco will be appealed. But the potential crack in the cigarette industry's armor against smoker liability suits sent Dow component Philip Morris and other tobacco shares sliding and provided investors with a late excuse to sell in an otherwise lackluster session.

Most indexes ended with a small loss, but the number of stocks that rose on the day exceeded the number of declining issues on both the New York Stock Exchange and the Nasdaq Stock Market.

Philip Morris shares were halted with a 3 1/2-point loss at 102 on the NYSE--the equivalent of more than 10 Dow points--but the stock wound up falling 14 5/8 to 90 7/8 in later trading on other markets, threatening the Dow with a 45-point slide at Monday's open. RJR Nabisco, another leading cigarette maker, plunged 4 1/4 to 28.

Bonds rallied Friday morning after the Labor Department reported that wholesale prices were unchanged in July, the latest in a stream of signals that inflation is not threatening to ruin a six-year economic expansion.

Many analysts had expected a 0.2% increase in the producer price index, but the stock market failed to rally as long-term interest rates fell to their lowest level since early April.

"You've got a lot of the good news factored in here already," said Larry Rice, chief investment officer at Josephthal, Lyon & Ross, noting last week's rally on a series of mild economic readings. "The market had already gone a long way toward anticipating the good PPI news and interest rate scenario."

If anything, he added, "the PPI took the steam out of what could have been a fairly sharp rout" on Thursday evening's news that a widely watched gauge of semiconductor industry performance worsened last month, reversing a gain in June that had bolstered hopes for speedier growth.

The NYSE's composite index fell 0.47 point to 353.44, and the Standard & Poor's 500-stock index fell 0.49 point to 662.10.

Despite a bad session for many semiconductor issues, technology-laden indexes held up fairly well: The Nasdaq composite index fell 0.24 point to 1,137.27, and the American Stock Exchange's market value index fell 0.97 point to 550.80.

After the PPI report, the yield on the 30-year Treasury bond--a key determinant of borrowing costs for business and consumers--slipped below 6.69% for the first time since early April, when inflation fears were growing rampant. Inflation makes a fixed-income investment less valuable, forcing a discount in bond prices to increase their yields.

The price report strengthened beliefs that the Federal Reserve Board will not need to raise short-term interest rates later this month to hold prices in check. Higher interest rates and bond yields can hurt stocks by raising corporate borrowing costs and slowing consumer spending.

Among Friday's highlights:

* The tobacco verdict hit most tobacco companies and related issues. Loews sank 3 5/8 to 78 7/8; UST skidded 2 1/8 to 31 3/4. American Brands slid 1 3/4 to 44 and Universal dropped 1 1/4 to 26 7/8.

BAT, owner of American Tobacco and Brown & Williamson, dropped 5/16 to 15 5/8.

* Several chip makers slipped following Thursday's release of the monthly book-to-bill report this week: Micron Technology fell 7/8 to 24 5/8, LSI Logic fell 1 1/8 to 22 5/8, Texas Instruments fell 1 to 46 3/4, Motorola fell 1 5/8 to 56 1/4 and National Semiconductor fell 3/4 to 15 1/2. But Intel bucked the trend in active Nasdaq trading, rising 1 5/8 to 82 3/8.

* Shares in America Online lost 12% of their value as investors reacted to its slower-than-expected growth in the April-June period and a nearly one-day outage of its service Wednesday. The stock fell 4 1/8 to 29 1/4.

* Shares of Quarterdeck rose for a second straight day on rumors that McAfee Associates might make an offer to buy the software utilities maker. Shares climbed 1 to 8 3/4.

* San Francisco-based Hambrecht & Quist shares rose 14% in the securities firm's first day as a publicly traded company, rising 2 1/4 to 18 1/4.

* Oil stocks retreated. Exxon lost 2 to 80 5/8, Chevron fell 1 to 57 3/4 and Mobil dropped 3/4 to 110 3/8.

In the commodities market, grain prices rose on brisk exports and concerns about cool weather in the Midwest, but pork bellies fell sharply for a second day.

The Commodity Research Bureau's index of 17 commodity futures ended up 0.14 point at 246.14.

At the Chicago Board of Trade, September corn closed 10 cents a bushel higher at $3.63, with private exporters saying that Mexico bought 80,000 metric tons of corn overnight. Rumors circulated that Mexico was seeking a total of 350,000 tons, underpinning futures.

Overseas, Tokyo's Nikkei stock average fell 0.9%, Frankfurt's DAX index fell 0.5%, and London's FTSE-100 ended slightly lower.

Market Roundup, D4

* BLOW FOR INDUSTRY

Cancer victim awarded $750,000. A1

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