Dow Loses 34.50, Most of the Gain It Made Last Week

Wall Street stocks tumbled Monday, erasing almost all last week’s gains, as a combination of sliding bonds and rising commodity prices sparked a wave of selling.

The Dow Jones industrial average lost 34.50 points to 2,108.46. Trading volume on the New York Stock Exchange was heavy at 264.41 million shares, but traders said about half of that was related to dividend-capture strategies.

The decline in share prices, which gathered pace in the last hour of trading, wiped out most of last week’s 38.94-point advance and once again highlighted the market’s skittishness.

A late, sharp drop in bond futures knocked stock futures, triggering programmed sell orders on the NYSE, traders said.

Declining shares outnumbered advances 1,087 to 410 in the broader market as equities tracked a drop in U.S. bond prices, due to rising commodity prices as drought continued to grip the Midwest.

“It was pure and simple profit taking over the rise in the CRB index,” said market analyst Donald Hays of Wheat First Securities, referring to a gauge of commodity price trends.

The Commodity Research Bureau’s index rose 5.34 percentage points to 270.52. “The CRB index is up 500 or so (basis) points, and I don’t care if it is grain related, it still weighs on bond prices,” one trader said. “Until you get bond prices moving up again, stock prices will drift lower.”

The rise in the CRB index, coming ahead of the Federal Open Market Committee’s two-day meeting later this week, revived the market’s old fear that the Federal Reserve may tighten credit.

Traders said Wall Street, which has added about 150 points since late May, also was rattled by a selloff in London stocks, which followed news of a record British balance-of-payments deficit of 1.21 billion pounds ($2.06 billion).

The chief U.S. trader of Japan’s Daiwa Securities, Ned Collins, reported early selling on Wall Street by Japanese investors following Tokyo’s losses Monday and in Saturday’s half-day session.

Japanese investors, anxious that a recent rise in the dollar may suck funds out of the Japanese markets and into U.S. assets, drove the Nikkei index down 121.20 points to 27,435.01.

Among the stock market’s other indexes, the blue chip Standard & Poor’s 500 index lost 4.73 points to 269.06, while the broadly based NYSE composite index declined 2.34 to 152.22.

“It’s pretty hard to get the market going when you have 130 million shares worth of fluff involved,” the trader said, referring to the bulk of volume devoted to dividend-capture plays.

Actively Traded Issues

Market analysts said that, while dividend-capture plays may not weigh on share prices, they draw the attention of potential buyers away from other stocks.

The most actively traded share on the NYSE was Southern California Edison, which fell to 34, with 98.9 million shares changing hands--the second-highest total ever for any NYSE issue in a single session.

The issue just missed going over the 100-million-share level, topped for the first time more than a week ago when dividend-related trading pushed volume in Occidental Petroleum to 104.3 million shares.

Northern States Power fell 1/8 to 32 1/8 Monday on volume of 12.4 million shares.

Shares in Fort Howard Corp. rose 3 7/8 to 53 7/8 after the Wisconsin paper products firm said it had accepted a $53-a-share buyout offer from its management. Analysts said they expected the bidding to rise, especially if another offer emerges.

Wang Laboratories Inc. rose 1/2 to 10 7/8 on the American Stock Exchange, where it topped the list of actives. Traders attributed the gain to early speculation that ITT Corp. was interested in acquiring Wang, a computer maker.

The rumor was burst as traders said it was unlikely that the Wang family would sell its controlling interest. A spokesman for ITT also dismissed the takeover speculation.

Shares of AM International Inc. rose 3/4 to 4 3/4 after the company said it would sell its unprofitable Harris Graphics Web Press Group for $250 million. But some analysts say they are concerned that the sale may crimp the data business company’s growth outlook.

York International Corp., a manufacturer of air conditioners, rose 5 1/8 to 55 5/8 after agreeing to be bought by investor group York Holdings Corp. for $57.50 per share, or $750 million.

Veeco Rises

Morgan Stanley, meanwhile, dropped 2 3/8 to 78 1/2. The Securities and Exchange Commission brought insider-trading charges against a young analyst at the firm.

Pacific Gas and Electric fell 3/8 to 15 3/4 after announcing it would slash its quarterly dividend by 13 cents to 35 cents a share. The utility company also said it had reached a settlement on its Diablo Canyon nuclear plant rate case and would take a one-time $500-million charge. Pacific said the charge would wipe out its 1988 profit.

Veeco Instruments Inc. rose 2 1/2 to 20 on reports it was holding merger talks with several parties.

View-Master Ideal Group, which said it had stopped looking into merger possibilities and planned to remain independent, fell 1 3/8 to 5 3/8 in the over-the-counter market.

L.A. Gear, another OTC issue, gained 1 1/8 to 30 7/8. The company, which makes sports and leisure footwear, said it would report quarterly earnings above analysts’ estimates.

The NYSE’s composite index of all its listed common stocks dropped 2.34 to 152.22.

Large blocks of 10,000 or more shares traded on the NYSE totaled 2,859, compared to 3,361 Friday.

The Wilshire index of 5,000 equities closed at 2,689.454, down 38.218 or 1.40% from the preceding trading day.

Standard & Poor’s industrial index fell 5.74 to 310.44, and S&P;’s 500-stock composite index was down 4.72 at 269.06.

The NASDAQ composite index for the over-the-counter market slumped 2.62 to 389.00. At the American Stock Exchange, the market value index closed at 306.62, down 1.87.

In London, share prices skidded lower on the London Stock Exchange following the release of a dismal trade deficit report for May.

The Financial Times-Stock Exchange 100-share index closed 29.8 points, or 1.6%, lower at 1,841.5.

Trading volume was a modest 390.7 million shares, compared to Friday’s 589.0 million shares.

Related stories on pages 4, 7 and 8.