Dow Comes Back to Earth Thanks to Profit-Taking Surge

NEW YORK —  Wall street stocks closed marginally lower today, after soaring into record territory the previous day, as profit-taking offset continued interest in technology and retail issues.

The Dow Jones industrial average closed down 0.42 at 2809.73 on heavy New York Stock Exchange volume of about 194 million shares.

The industrial average gained 56.95 Tuesday to close above the 2,800-level for the first time.

Today, advancing issues outnumbered declines by about 6 to 5 on the New York Stock Exchange, with 878 up, 726 down and 395 unchanged.

Big Board volume totaled 192.33 million shares, against 162.07 million in the previous session.

The NYSE’s composite index lost .20 to 197.80.

International Business Machines continued to build on its gains from Tuesday to close on the New York Stock Exchange up 3/4 at 98 7/8.

The market’s sharp rise Tuesday in the first session of the new year featured strength in many stocks that had fared poorly in the waning stages of 1989.

Analysts said that resulted from a lifting of the pressure of year-end tax selling.

As profit-taking halted the Dow’s rally today, some investors also seemed reluctant to chase after stocks, given persistent worries about the outlook for the economy and corporate earnings.

In the minds of many observers, stocks of many companies still represent a risky bet that business activity and earnings growth will begin to recover later this year from the slump that set in several months ago.

Bond prices were sharply lower in early trading today after the government reported robust sales of new homes in November.

The Treasury’s benchmark 30-year bond was down 7/16 point, or $4.38 per $1,000 face amount, around midday. Its yield, which rises when prices fall, climbed to 8.03% from 7.99% late Tuesday.

The Commerce Department said that sales of new homes surged 9.6% in November, the steepest gain in four months. Analysts said the report threw water on recent talk of a real estate industry slowdown.

Since long-term fixed-income investments such as bonds are considered a safe haven during periods of economic sluggishness, prices tend to decline following positive economic news.

The government said new single-family homes were sold at a seasonally adjusted annual rate of 710,000 units in November after edging up a revised 0.9% in October. Sales in October originally were reported to be off 0.5%.

“The strength of that number led people to believe that the real estate market is not as soft as the casual evidence might suggest,” said Ray Stone, a managing director of Stone & McCarthy Research Associates Inc.

“There’s been a lot of to-do in the press in the last month about home prices falling,” he said. “This would tend to dispel that notion to a degree.”

In the secondary market for Treasury bonds, prices of short-term governments were off 1/16 point to 7/32 point, intermediate maturities were down about 1/4 point and long-term issues were 11/32 point lower, according to Telerate Inc., the financial information service.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The Shearson Lehman Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, was down 2.44 to 1,185.33.

Yields on three-month Treasury bills issued Tuesday fell to 7.89% as the discount was unchanged at 7.64%. Yields on six-month bills rose to 7.94% from their level at auction as the discount gained 2 basis points to 7.54%. Yields on one-year bills were up to 7.82% as the discount gained 4 basis points to 7.31%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.

The federal funds rate, the interest on overnight loans between banks, was quoted at 8 3/8%, down from 8 1/2% late Tuesday.