Dow Off 20.09; Inflation Jitters Depress Market : Drought’s Impact on Future Food Costs Cited

The stock market weakened Monday in the second-slowest session of the year, which brokers attributed largely to recurring fears of drought-spawned inflation and talk that interest rates will rise.

The Dow Jones index of 30 industrials dropped at the opening bell on Wall Street and remained lower throughout the session, finishing at 2,083.93, down 20.09. Broader market indicators also fell.

New York Stock Exchange volume totaled 116.75 million shares, the slowest since a 1988 record low of 102.64 million shares traded May 23. It also was about one-third the volume of the year’s record high of 343.92 million shares traded Friday, when dividend-capture strategies and expiring contracts on futures and options grossly inflated the volume figure.

Traders said a key element in the market’s behavior Monday was renewed inflation anxiety caused by a prolonged agricultural drought, which has led to the likelihood of sharply higher grain and meat prices.

There also was talk that leaders of the seven industrialized democracies meeting in Toronto might coordinate a round of higher interest rates.

“Anytime somebody mentions higher interest rates, that spooks us,” said Robert O’Toole, manager of over-the-counter trading at Shearson Lehman Hutton Inc. in New York.

Joseph Barthel, a technical strategist with the Philadelphia-based investment firm Butcher & Singer Inc., said the economic uncertainty provided “a classic backdrop for time-out.”

The stock market decline came despite some predictions of a short-term rally caused by expected demand from large institutional investors and money managers, who want to put unused money to work in stocks before the end of the fiscal quarter June 30, a phenomenon known as “window dressing.”

Losers Edge Gainers

“They were very eager to buy stocks,” said Philip C. Puccio, senior vice president and manager of institutional trading at Dillon Read & Co. in New York. “Now they’re saying ‘well, we’re going to wait.’ ”

Declining issues outnumbered advances by about 3-to-2 in nationwide trading of NYSE-listed stocks, with 883 down, 588 up and 485 unchanged.

The most prominent NYSE issue was Texaco, which fell 1 1/8 to 46 7/8 on volume of more than 2.6 million shares. Takeover strategist Carl C. Icahn conceded defeat in a shareholder proxy battle with the oil giant.

Among other blue chips, Du Pont fell 2 to 87 5/8, McDonalds dipped 7/8 to 43 3/4, Woolworth lost 1 to 50 7/8 and Minnesota Mining dropped 1 to 62 1/2.

In the over-the-counter market, Farmers Group fell 5 3/8 to 56 3/4 on news that California regulators unexpectedly denied BAT Industries permission to take over the company.

Large blocks of 10,000 or more shares traded on the NYSE totaled 2,456, compared to 3,714 in the previous session.

Nationwide, consolidated volume in NYSE-listed issues, including trading at regional exchanges and on the over-the-counter market, totaled 136.18 million shares.

The NYSE composite index of all listed issues fell 0.88 to 151.96.

Foreign Markets Ease

The Wilshire index of 5,000 equities closed at 2,681.181, down 15.062.

Standard & Poor’s index of 400 industrials fell 2.04 to 310.76, and S&P;’s 500-stock composite index fell 1.74 to 268.94.

At the American Stock Exchange, the market-value index fell 0.58 to 305.12. The NASDAQ composite index for the over-the-counter market closed at 385.99, down 0.93.

In Japan, share prices on the Tokyo Stock Exchange fell for the first time in six days Monday, while the dollar closed slightly higher against the Japanese yen.

The Nikkei stock index of 225 selected issues, the market’s main index, dipped 203.43 points, or 0.71%, from Friday’s close to finish the day’s session at 28,139.03.

The Nikkei index closed at 28,342.46 on Friday, the fifth consecutive day it posted record highs. Trading was sluggish Monday, with 1.2 billion shares changing hands, compared to 1.7 billion on Friday.

Share prices also settled lower on London’s Stock Exchange, pulled down by nagging fears of rising interest rates.

The Financial Times-Stock Exchange 100-share index was down 6.1 points, or 0.3%, at 1,844.0 at the close.

Trading volume was a slim 323.6 million shares, compared to Friday’s 506.1 million shares.