Dow Slides 127 on Profit-Taking; Yields Surge

Stocks veered off the road to recovery Thursday as the Dow Jones industrial average extended a streak of unprecedented volatility, sliding 127 points for its fifth straight triple-digit swing.

Bonds and the dollar also tumbled.

After rallying more than 300 points since Monday, the Dow Jones industrial average slid 127.28 points, or nearly 1.6%, to 7,893.95.

In the broader market, declining issues swamped advances by more than a 2-1 margin on the New York Stock Exchange in fairly heavy trading.

The Nasdaq composite index, which led the market’s rally on Tuesday and Wednesday, lost 21.34 points, or 1.3%, to 1,607.36.

Analysts said that after the market’s dazzling three-day run-up, stocks were due for a round of profit-taking. The absence of many key market traders, lost to summer vacations, has made for very thin trading and exaggerated stock movements all week.

Analysts also noted the close relationship between stocks and the dollar, which have moved in the same direction over the last few days.

“It’s no accident that as the dollar rallied over the past three days, stocks jumped. But today the dollar fell back and so did stocks,” said Peter Canelo, U.S. equity strategist at Morgan Stanley Dean Witter.

The markets also shuddered slightly in the afternoon following an apparently inaccurate report that Warren Buffett--the billionaire investor known for his buy-and-hold approach--may have liquidated some of his holdings, which some investors may have seen as a bearish signal.

“On a day when there’s not much other cud to chew, this [report] turns into something that people try and make noteworthy,” said Crane. There was also little in the way of major economic news to steer the market.

The Labor Department reported that the number of first-time claims for jobless benefits shot up by 20,000 last week to 337,000. The jump was the third straight advance since claims hit a 23-year low of 275,000 during the week ended July 26.

Many analysts had expected a smaller increase of 9,000, but there was little market reaction to the data, which has been distorted in recent weeks by the economic ripples of strikes at United Parcel Service of America and General Motors.

And in another sign that the economic pace remains brisk enough to keep investors on guard about pricing pressures, the Philadelphia branch of the Federal Reserve reported that the manufacturing sector and job market have remained quite vigorous in the mid-Atlantic region.

Currency traders sold the dollar on fears that Germany’s central bank might raise its interest rates, which could lure foreign investors away from U.S. financial markets.

The dollar slid to 1.8360 German marks from 1.8558 on Wednesday. In late New York trading, the dollar fell to 117.20 Japanese yen, from 117.53.

Although the German central bank left interest rates unchanged, it added to the uncertainty about future interest rate moves by announcing a plan to set its key securities repurchase tenders every Tuesday instead of every second week.

Wall Street was also nervous heading into today’s session, since Fridays have tended to bring big losses recently. Last Friday, the Dow plunged 247 points in the biggest drop since the 1987 stock market crash.

In the bond market, the key 30-year Treasury price fell more than a full point, raising its yield to 6.62% from Wednesday’s close of 6.54%. Bond prices and yields move in opposite directions.

Among Thursday’s highlights:

* The Dow’s biggest decliners were some of the most popular components of the blue-chip average: Procter & Gamble fell $3.13 to $137.88, IBM fell $2.25 to $105.75, General Electric fell $1.94 to $65.94 and Merck fell $1 to $94.75.

* Decliners on Nasdaq included Microsoft, down $2.69 to $137.88; Intel, down $2.13 to $98.38; and Dell Computer, down $2.50 to $85.38.

* Wells Fargo led a retreat in banking shares, tumbling $13 to $254.50 in U.S. composite trading.

Other falling bank shares included BankAmerica, down $2.13 to $68.31; Bank of New York, down $1.94 to $46.81; and SunTrust Banks, down $1.88 to $61.63.

* Bucking the down trend, Ciena, a maker of fiber-optic communication equipment, rose $2.19 to $52.25 after third-quarter earnings topped the average forecast.

* Sunglass Hut International dropped $1.38 to $8.06 after saying second-quarter earnings, traditionally its most profitable period, fell short of the average forecast.

Overseas, Tokyo’s Nikkei stock average fell 0.5%, Frankfurt’s DAX index rose 0.7% and London’s FTSE-100 rose 0.4%.

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Market Roundup, D8