The stock market's record-setting advance paused Thursday, pulling most indexes lower as investors waited to see if today's September employment report justifies an optimistic outlook on inflation and interest rates.
The Dow Jones industrial average, which closed at new highs Tuesday and Wednesday, slipped 1.12 points to 5,932.85 after trading slightly lower for most of the day.
The session was characterized as a natural pause in the market's speedy rebound in August and September after July's sharp decline.
Thursday "was a timeout. The market has done well in recent days, so it deserves a rest, and we have this employment report in front of us," said A. Marshall Acuff Jr., market strategist at brokerage Smith Barney in New York.
The monthly employment reading has jolted the financial markets repeatedly this year with indications of rising payroll costs that could prompt manufacturers to raise prices. But many economists expect the September data to provide further evidence that economic growth is slowing enough to keep inflation under control.
Last week, Federal Reserve Board policymakers decided not to boost the central bank's key lending rates, opting instead to see if the economy can continue to decelerate of its own accord.
Still, given the number of sharp bond and stock market sell-offs that have followed employment reports this year, it was surprising that it took until Thursday for investors to step back, Acuff said.
"The markets had done well this week in the face of a statistic that this year has produced a great deal of volatility. [Investors] knew the report was coming, but it was a nonevent until [Thursday]," he said, attributing the calm to "optimism that maybe the torrid pace of job creation is beginning to slow down. But we don't know until we see it."
There was little reaction Thursday to a fairly weak report on August factory orders. Bond yields were mostly unchanged, with the 30-year Treasury bond yield holding at 6.83%, same as Wednesday.
On the New York Stock Exchange, declining issues outnumbered advancers by a 10-9 margin as trading volume slowed.
Among Thursday's highlights:
* Underscoring the day's inactivity, there were only three Dow issues that moved more than a point. Philip Morris fell 1 3/8 to 91, reacting to another setback in tobacco liability litigation, this time in Florida. Among other Dow stocks, Sears rose 1 3/8 to 46 1/2 and AlliedSignal rose 1 1/8 to 66 5/8.
* On the plus side, Monsanto jumped 1 1/4 to 39 7/8 after the firm gave a bullish outlook for new-product introductions in the biotechnology area. In the meantime, a PaineWebber analyst said the company's third-quarter earnings could be helped by strength in its chemical businesses.
Other industrial shares gaining ground included PPG Industries, up 1 to a record 55; Phelps Dodge, up 1 1/8 to 65 3/8; and Georgia-Pacific, up 1 1/8 to 80 1/8.
* Starbucks, the coffee retailer, soared 2 1/8 to a record 39 1/8. It said sales in September rose 8% at stores open at least one year.
* The parade of companies warning about disappointing third-quarter earnings continued. They included EIS International, a maker of phone call processing systems, which tumbled 5 1/8 to 7 7/8; and software firm Wall Data, which plunged 9 1/4 to 14.
After the market closed, Parker-Hannifin and Dole Food also said earnings will disappoint in the quarter. Parker had lost 1 1/4 to 40 1/2; Dole had gained 1 to 43.
* Among Southland issues, Aames Financial rocketed 5 1/8 to 58. The mortgage broker said it didn't know exactly why the stock was up, but that its executives were on a "road show" discussing the company's prospects with investors after a recent secondary stock offering.
In foreign trading, Hong Kong's Hang Seng stock index closed above the 12,000 mark for the first time since February 1994, buoyed by a strong local economic outlook. It rose 62.68 points to 12,014.56.
Market Roundup, D6