Dow Falls 65 as Yields Near 5-Month High

Stocks slid Monday as long-term bond yields rose to their highest level in nearly five months.

“With the [long bond] rate edging up close to 6.50%, it’s starting to send a wake-up call to equities,” said Russ Labrasca, senior vice president for Sutro & Co. in San Francisco.

Most of this year, investors have bet that falling borrowing costs would help extend a 15-month rally in share prices. Without a boost from lower rates, companies will have a difficult time expanding earnings in a period of tepid economic growth, analysts said.

The Dow Jones industrial average shed 65.39 points from Friday’s record close to wind up at 5,565.10. The index failed to hold above 5,600 for the second time in a powerful rally that started in late January amid optimism for lower interest rates.

The Dow set records Thursday and Friday, shrugging off a previous four-day slide, as investor dollars continued to flow into mutual funds.

Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume totaled 395.19 million shares as of 4 p.m., below Friday’s level.

Broad market indexes also fell, although the Nasdaq composite index, down 4.74 points from a record to close at 1,113.05, averted a wider loss as many technology shares held on to their recent gains.

Bonds continued their trend of the last two weeks, with the 30-year T-bond yield rising to 6.45% from 6.40%. Higher interest rates can hurt corporate profits by making it more expensive for companies and consumers to borrow.

“As rates drift back up, you expect to see some reevaluation in the stock market,” said Michael LaTronica, market analyst at Gruntal Securities. “I suspect we’re seeing the beginning of the correction that has been anticipated by many. It’s a healthy, expected phenomenon. This market has gone up very quickly in a straight line.”

Among Monday’s highlights:

* Boeing fell 1 7/8 to 81 3/4 after NWA, parent of Northwest Airlines, said it will buy 20 A-320 airliners from Boeing’s rival, Airbus Industrie.

* Silicon Graphics fell 2 1/8 to 25 3/8 and Cray Research rose 3 1/4 to 28 1/2. Silicon Graphics agreed to buy Cray with an offer of $30 a share.

* Sterile Concepts rose 3 3/4 to 16 3/4 and Maxxim Medical slipped 3/8 to 18 7/8 on news that Maxxim plans to buy Sterile Concepts, a medical products maker, for $16 a share.

* Motorola fell 5/8 to 57 3/4. Sun Micro rose 2 1/8 to 56 1/8 after news that the two had agreed to form an alliance.

* Hutch Technology tumbled 7 1/4 to 41 1/2. It warned that its second-quarter earnings will fall below expectations.

* Crop Growers shed 4 to 8 1/2. It is under investigation for alleged violations of federal election laws relating to contributions made to the 1993 unsuccessful congressional primary campaign of Henry Espy, brother of former Secretary of Agriculture Mike Espy.

* Tele-Communications’ stock fell 13/16 to 21 1/4. Interactive Network charged in a lawsuit that the cable company tried to steal the company’s patents for interactive television, the Wall Street Journal reported.

* Utility shares weakened amid concern that rising rates will make it more expensive for the companies to sell the bonds needed to finance their operations. The Dow utilities average fell 1.95 points to 223.94, its second straight drop. Houston Industries fell 1/2 to 22 1/2, Consolidated Edison dropped 3/8 to 32 7/8 and Pacific Gas & Electric slid 1/2 to 25 3/8.

Overseas, Tokyo’s Nikkei stock average rose 0.9%, Frankfurt’s DAX index fell 0.4% and London’s FTSE-100 fell 0.1%. Mexican stocks fell for the first time in four sessions, with the Bolsa index ending the day at 2,955.39, down 26 points, or 0.9%.

Heating oil prices hit 3 1/2-year highs on a forecast for colder weather in the Midwest and Northeast and tightening supplies.

Heating oil supplies have been dwindling, especially on the East Coast, where stocks are nearly 16 million barrels below what they were a year ago.

With forecasters predicting a drop in temperatures to below-normal levels in coming days, demand for heating fuel and natural gas will rise, analysts said.

March heating oil, whose contract expires Thursday, jumped 2.19 cents to 62.85 cents a gallon, the highest close for a spot contract since 1992. However, the contract fell short of the 63-cent intra-day high set Jan. 9.

Market Roundup, D8