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Blue-Chip Favorites Lead Market Decline; T-Bond Sinks to 4.88%

October 02, 1998|From Times Staff and Wire Reports

Investors began tossing out even their favorite big-name stocks on Thursday, triggering another major decline for Wall Street on the first day of the fourth quarter.

Meanwhile, the Treasury bond rally picked up even more steam, as investors rushed to lock in yields amid growing gloom over the world economy.

The stock market's slide, which took the Dow industrials down 210.09 points, or 2.7%, to 7,632.53 after a 237-point drop on Wednesday, was reminiscent of the late-August plunge, when the Dow lost 1,060 points over four sessions.

Now, as then, investors have begun heavily selling blue-chip stocks that had previously held up well.

Among the day's big losers: Microsoft, down $6 to $104.06; GE, down $4 to $75.56; Home Depot, off $3.38 to $36.13; and Pfizer, down $6.13 to $99.63.

Overall, losers topped winners by 24 to 8 on the New York Stock Exchange and by 33 to 8 on Nasdaq, in heavy trading.

Among other major stock indexes, the Nasdaq composite tumbled 81.51 points, or 4.8%, to 1,612.33, the Standard & Poor's 500 slid 3% to 986.39 and the Russell 2,000 index of smaller stocks lost 3.7% to 350.04.

Analysts said the market on Thursday was undermined by rising fears that the U.S. economy will slow sharply in coming quarters, hurt by the ongoing crises in many foreign economies.

"Things are worse than anyone's willing to admit at this point," and that's helping to support Treasuries, said Kevin McClintock, head of taxable fixed-income investments at Dreyfus Corp., which manages more than $90 billion in assets. "Recession is going to be difficult to avoid in the U.S., and there're more international events yet to be heard about."

Another stock sell-off in Japan and in Europe also weighed on Wall Street.

In Tokyo the Nikkei-225 stock index slid 1.6% on Thursday to 13,197, its lowest close since early 1986, amid dumping of major exporters' stocks. Investors are worried that Japanese export sales will slide if the U.S. economy weakens significantly.

In Europe, the French market plunged 5%, the Spanish market fell 7.1% and the Italian market dropped 4.7%, as investors fretted over the potential for Europe's economy to ebb in 1999.

Most European markets now are down year-to-date. At midsummer they were among the world's strongest markets, with gains of 20% to 40%.

Latin American markets followed Wall Street lower. Mexico's main market index dropped 5% while the Brazilian market plummeted 9.6%.

The Dow was off as much as 260 points Thursday before rebounding somewhat.

After rallying from an intraday low of 7,400 on Aug. 31 to a high of 8,154 by Sept. 23--the day Federal Reserve Board Chairman Alan Greenspan signaled that the Fed would cut short-term interest rates--the Dow now is less than 100 points above its Aug. 31 close.

Other indexes also are nearing their late-August lows. Breaking through them could trigger fresh selling that would take the Dow through the 20%-decline threshold that usually defines a true bear market.

At its closing level on Aug. 31 the Dow was off 19.3% from its record high.

Meanwhile, if stock selling is nearing panic levels again, bond buying is panicked as well.

Yields fell dramatically on Thursday as buyers rushed to lock in returns, betting that the economy will continue to slow and that rates will decline even more sharply in the months ahead.

The bellwether 30-year Treasury bond yield sank to a record low 4.88% from 4.97% on Wednesday. The yield on 1-year T-bills dropped to 4.27% from 4.39%.

Among Thursday's highlights:

* Financial blue chips led the way, with American Express down $4.13 to $73.50, J.P. Morgan down $3.63 to $81 and Merrill Lynch down $3.19 to $44.

* In the tech sector, IBM dropped $3.13 to $125.38, Dell Computer slid $4.19 to $61.56, Yahoo plunged $16.56 to $112.94 and Sun Microsystems lost $4.25 to $45.56.

* Drug stocks, recent market favorites, fell sharply, with Bristol Myers down $4.88 to $99 and Merck off $4.56 to $125.

* Industrial stocks tied to the economy's swings also tumbled. The Morgan Stanley cyclical stock index slid 3.9%.

* Among the day's winners, gold stocks rose as the metal's price rose $3.20 to $299.60 an ounce--attracting some safe-haven investors.

Newmont Gold jumped $3.44 to $29 and ASA surged $1.31 to $21.94.

* Some utilities also rose, with Ameritech up $2.88 to $50.38 and SBC Communications up 94 cents to $45.31.

*

Market Roundup, D6

MAIN STORY: A1

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