Bond Yields Fall; Dow Drops 15 : Market Overview

Long-term Treasury bond yields tumbled again on fresh reports of slower economic growth.

* Stocks ended lower in moderate trading, as industrial and transportation issues sold off while health care issues rose.

Credit

Bond yields approached their record lows of last week, though traders said activity was relatively subdued after the explosion at Manhattan’s World Trade Center on Friday. Some major traders appeared to be largely absent.

The yield on the Treasury’s 30-year bond sank to 6.84% from 6.89% on Friday. The all-time low last week was 6.82%.

The renewed push into bonds came as two economic reports suggested a slowing economy, which in theory would take further pressure off interest rates:

* The nation’s corporate purchasing managers said the manufacturing economy continued to expand in February, but slower than in January.

* Sales of previously owned homes fell 6.4% in January after four straight increases.

Bonds were also helped in the aftermath of the meeting of the Group of Seven major industrialized nations over the weekend. Because the nations’ finance ministers failed to push for a stronger Japanese yen--as had been rumored--the yen weakened against the dollar in trading Monday.

That encouraged traders to buy dollar-denominated investments such as U.S. bonds, said Mike Casey, economist at Maria Fiorini Ramirez Inc. in New York.

While many bond traders worry that the recent decline in interest rates has been overdone, others see the bond market positioned for even lower yields in coming months. Reason: Expectations are growing that President Clinton’s proposed economic plan will slow the economy, at least at first, by raising taxes substantially.

With recent economic reports already indicating that the economy is losing altitude, Clinton’s program could have a heavily depressive effect--which would reduce demand for money and thus allow interest rates to fall further.

Stocks

Industrial and transportation stocks were slammed as worries about the economy took center stage again.

But traders noted that, as with bonds, stock activity was hampered because of Friday’s explosion in Manhattan. Salomon Bros., Dean Witter and other investment firms with offices near the blast center were either closed or relocated, causing difficulty for clients.

The Dow industrials lost 15.40 points to 3,355.41, as Big Board volume eased to 237.02 million shares from 242.99 million Friday.

Gainers outnumbered losers by about 5 to 4 on the Big Board, but losers held a slight edge on the NASDAQ market.

The worst-hit stocks were transportation issues, which would be among the first groups to suffer if the economy continues to slow.

The Dow transports index lost 33.44 points, or 2.2%, to 1,484.66.

Still, some analysts warned against reading too much into the selloff of economy-sensitive issues Monday because the slow volume tends to exaggerate price moves. If investors begin to turn severely bearish it will show up in large price declines on heavy volume.

Investors got one very encouraging report Monday: Standard & Poor’s Corp. said 173 companies boosted cash dividend payments last month, the largest number of increases since 200 firms did so in February, 1989.

Rising cash dividends indicate that companies are more optimistic about their profit prospects.

Among the market highlights:

* Transportation issues sliding included Delta Airlines, off 1 5/8 to 47 5/8; Federal Express, down 1 7/8 to 54 1/2; Ryder, off 1 1/2 to 27 3/4, and Conrail, which fell 7/8 to 53 1/2.

Also, Roadway Services plummeted 6 3/4 to 63 1/4 after saying it will be tough to post an earnings gain this year because of accounting changes and capital spending.

* Among industrial issues losing ground, USX-U.S. Steel fell 2 3/8 to 34 7/8, Inland Steel dropped 1 3/4 to 20 3/8, Phelps Dodge eased 1 1/2 to 49 1/2, Reynolds Metals slid 1 1/4 to 50 1/2, and Georgia-Pacific gave up 1 3/4 to 63 3/4.

* Technology issues, also sensitive to the economy, were mostly lower. Compaq tumbled 3 3/8 to 41 7/8, Intel fell 1 1/4 to 115 1/4, Motorola lost 2 to 56 3/4, and Oracle Systems dropped 1 3/8 to 31 3/8.

* Medical stocks were a bright spot, as bargain hunters moved in again. Merck rose 1 to 39 1/2, Bristol-Myers added 1 1/2 to 58 1/4, Schering-Plough jumped 1 1/2 to 58 1/2, Amgen surged 1 3/8 to 37 5/8, and U.S. Healthcare rose 2 1/4 to 44 1/4.

* H&R; Block dropped 3 to 38 3/8 after the tax preparer said activity in the first half of the 1993 tax season has been somewhat lower than expected.

Overseas, Frankfurt’s DAX index gained 16.60 points to 1,700.95, a 7 1/2-month high, on new hopes for German interest-rate cuts. In London, the FTSE-100 index added 14.6 points to 2,882.60.

In Tokyo, the Nikkei index fell 73.75 points to 16,879.60.

Other Markets

The dollar rose against the Japanese yen and German mark, but trading was generally slow.

The dollar settled at 118.70 yen and 1.655 marks in New York, up from 118.25 yen and 1.646 marks Friday. Western nations’ apparent decision not to push for a stronger yen at weekend finance meetings helped drive the dollar.

Elsewhere, near-term gold added 20 cents to $328.40 an ounce on New York’s Comex. Silver rose 1.9 cents to $3.56.

Oil futures prices rallied on news that Iran, Kuwait and Qatar are cutting oil production. Near-term light, sweet crude settled at $20.60 a barrel, up 20 cents.

Market Roundup, D8