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Dow Pauses Amid Investor Caution Over Profit Outlook

In mixed market, blue chips end a four-day rally unchanged. Yields edge lower as bonds lure buyers.

November 04, 1998| From Times Wire Services

U.S. stocks were mixed after four days of gains as investors saw little reason to buy shares at 11-week highs given the profit outlook.

"I don't see the stock market going materially higher," said Robert Rodriguez, who manages $1.8 billion for First Pacific Advisors in Los Angeles. "The threat of lower earnings and sluggish revenue growth hasn't been eliminated."

The Dow Jones industrial average was unchanged at 8,706.15, after a four-day surge that sent its shares to the highest level since Aug. 18. The Standard & Poor's 500 index fell 0.76 point, or 0.1%, to 1,110.84. The Nasdaq composite index dropped 12.48 points, or 0.7%, to 1,788.43.

U.S. bond prices rose for the first time in three days as the highest yields in seven weeks and expectations the economy will slow lured buyers. The benchmark 30-year Treasury bond rose, cutting its yield to 5.21%, from 5.25%.

The dollar rose against European currencies amid expectations that European interest rates will fall faster than U.S. rates after central bankers in Portugal, Spain and Sweden lowered rates. The dollar rose to 1.6623 marks from 1.6533 on Monday in New York. It climbed to 115.33 yen from 114.73.

The interest rate cuts in Spain and Portugal on Tuesday, and in Italy and Ireland last month, narrow the spread with rates in Germany and France and give the European Central Bank more room to lower rates once it takes over monetary policy Jan. 1.

Stocks paused after a four-day rally. Through Monday, the S&P 500 had gained 16% since Oct. 8, even though third-quarter operating profits for its member companies are expected to fall 1% short of the year-earlier quarter's.

"To see revenue growth accelerate would require significant growth in Europe and Asia," said First Pacific's Rodriguez. Even if such growth occurs, it would take 18 months for the benefits to reach the U.S., he said.

To stabilize world economies, the Federal Reserve Board cut interest rates twice and the Group of Seven leading industrialized nations announced plans to help avert financial crises. Though investors say the Fed will probably cut at least once more, most analysts say there's no longer a need for a series of further cuts.

Treasury bonds have returned 15.6% to investors so far this year, including price gains and reinvested interest payments. By contrast, the Dow is up 11.4%, including dividend payments.

But the market faces the immediate hurdle of the Treasury's three-part quarterly auctions, for $38 billion, which have raised concerns about a temporary glut of securities.

The government kicked off the sales Tuesday with an auction of $16 billion in five-year notes, which met only tepid demand.

The Treasury sold the notes at a yield of 4.34%, or 0.01 percentage point higher than expected. Investors submitted bids for 1.8 times the amount of notes for sale. In the previous 10 five-year auctions, investors bid for 2.4 times the amount of notes for sale, on average.

Among Tuesday's highlights:

* K-Tel International soared $6.38, or 93%, to $13.25 after the company said it will sell music on the Playboy Enterprises Web site, buoying optimism that its online business will gain on larger rivals. K-Tel, which advertises music compilations such as "Hooked on Classics" on TV, will list its 250,000 music titles in a jointly developed store on the site.

* Gains in General Electric and Union Carbide helped prop up the Dow. GE rose $1.13 to $88.50 after it was reiterated "strong buy" by analyst Nicholas P. Heymann at Prudential Securities. Union Carbide rose $2.81 to $42.81.

* Citigroup fell $2 to $44.13. The world's biggest financial services company has lost more than 6% of its value in the two days after the departure of James Dimon, heir apparent for the company's top job.

Market Roundup, C11

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