Dow Retreats From Highs but Closes Up 7.12 : Trade, Interest Rates and Debate Stir Concern

The stock market moved ahead Thursday despite a 29% increase in the August trade deficit, but the dollar’s weakness pulled share prices from their highs. The Dow Jones index of 30 industrials rose 7.12 to 2,133.36. It had been up more than twice that amount earlier in the session.

Advancing issues outnumbered declines by about 8 to 7 in nationwide trading of New York Stock Exchange-listed stocks, with Big Board volume totaling 154.53 million shares, down slightly from Wednesday’s 154.84 million.

Before the market opened the Commerce Department reported that the trade deficit expanded to $12.18 billion in August from $9.47 billion the month before.

The latest figure slightly exceeded advance estimates on Wall Street, and sent the dollar briefly tumbling in foreign exchange trading. But the dollar soon steadied.

Analysts said the stock market appeared to have taken the news largely into account with its decline on Wednesday, when the Dow Jones industrial index fell 30.23 points.

Higher Prime Predicted

Thursday’s activity came as a sharp contrast to the occasion of the August trade report a year ago, when an unpleasant surprise in the data touched off a 95-point drop in the Dow just a few days before Black Monday on Oct. 19.

Stock market analysts said the market also was disheartened by reports that a well-known economist had predicted higher interest rates before the end of the year.

Allen Sinai of the Boston Co. said in Tokyo he believed that the prime rate would rise after the November election and before the end of the year.

“There was a reaction to the bearish interest rate forecast by Sinai,” said William LeFevre of Advest Inc. He and others also said the market was jittery ahead of the second and final debate between presidential candidates George Bush and Michael Dukakis.

Among actively traded blue chips, International Business Machines rose 1 1/8 to 118 5/8; Sears Roebuck gained 2 1/8 to 42 3/8, and American Telephone & Telegraph was down to 26.

Federal National Mortgage climbed 1 5/8 to 50 3/4, trading at new 52-week highs. On Wednesday the company reported sharply higher earnings for the third quarter.

Avon Products dropped 1 to 24 3/8. The company said it would post losses for the third quarter and the year as a result of a $425-million charge to be taken on some discontinued operations.

Pillsbury Co., which is battling a takeover attempt launched by Britain’s Grand Metropolitan, rose 3/8 to 57.

Merrill Lynch gained 3/8 to 27 3/4. Analysts said the company’s third-quarter earnings were better than expected despite sluggish retail investor activity.

Genentech dropped 1 to 16 3/4. The company said it had finished production for this year of a drug used to treat blood clots associated with heart attacks.

Sales of the new drug have so far fallen short of lofty expectations on Wall Street.

Takeover rumors and speculation sparked gains in such diverse stocks as West Point Pepperell, up 3 5/8 at 40 5/8; Chicago Pacific, up 1 3/4 at 43 1/2; McGraw-Hill, up 1 3/4 at 75, and Advanced Micro Devices, up 5/8 at 10 1/2.

Shares of regional airlines Midway Airlines Inc. and Southwest Airlines Co. rose on vague takeover speculation prompted by the news that investor Donald Trump is buying the Eastern shuttle, traders said. Midway rose 1 1/8 to 15 while Southwest Airlines was up 1 3/8 to 19 7/8.

The NYSE’s composite index of all its listed common stocks gained 0.57 to 155.34.

Standard & Poor’s industrial index rose 1.40 to 316.32, and S&P;’s 500-stock composite index was up 1.24 at 275.22.

The NASDAQ composite index for the over-the-counter market added 0.91 to 383.46. At the American Stock Exchange, the market-value index closed at 302.04, up 0.13.

In foreign trading the Nikkei 225-share index, the main index in the Tokyo Stock Exchange, lost 136.07 points to close at 27,273.30.

Share prices on the London Stock Exchange rose strongly as dealers breathed a sigh of relief that the U.S. trade report for August did not confirm the market’s worst fears. The Financial Times 100-share index closed up 16.4 at 1,830.7.