Stocks Sink to 2-Month Low, Hurt by Fears of Inflation

NEW YORK — The stock market tumbled to a two-month low Wednesday, pressured by a slumping dollar, weakness in takeover stocks and rising inflation fears.

The broad-based decline came as international currency traders gave a cool reception to the latest statistics on U.S. trade.

The Dow Jones index of 30 industrials dropped 38.59 to 2,038.58, its lowest close since it stood at 2,002.31 on Sept. 1.

Over the six sessions since the election Nov. 8, the index has posted a net loss of 88.91 points, or 4.2%.

Declining issues outnumbered advances by nearly 4 to 1 in nationwide trading of New York Stock Exchange, with Big Board volume rising to 161.71 million shares against Tuesday’s 115.17 million.

Before the market opened, the Commerce Department reported that the nation’s trade deficit narrowed to $10.46 billion in September from $12.27 billion the month before.

The latest figure, while it suggested improvement in a basic problem on many investors’ minds, came in very close to advance estimates in the financial community. Thus, analysts said, it didn’t really serve as new information.

But the dollar sank to 1.7175 West German marks and to 122.25 Japanese yen in early afternoon trading, from 1.7425 marks and 123.25 yen at Tuesday’s close.

Lower bond prices also weighed on stocks, with the benchmark 30-year Treasury bond losing nearly a point to 100-10/32, lifting its yield to 9.09% from 9.01% at Tuesday’s close.

The expectation that interest rates are set to rise helped spark a selloff of takeover issues, traders said.

“Rates are up and stocks are down. Arbitragers are feeling pressure to cut losses across the board,” said an arbitrager.

Jack Baker, a senior trader with Shearson Lehman Hutton Inc., said that recent rises in the federal funds rate, the rate which banks charge each other for overnight loans, suggested that the Federal Reserve is tightening credit.

Remarks by Federal Reserve Board Chairman Alan Greenspan about the need to reduce the U.S. budget deficit added to the market’s bearish sentiment, traders said.

Greenspan said the need to cut the deficit has grown more pressing because it is increasingly clear that U.S. reliance on foreign money is neither possible nor desirable over extended periods. “The presumption that the deficit is benign is clearly false,” Greenspan said.

“Greenspan was kind of downbeat,” one trader said. “His statements made people believe that if we don’t get the deficit down, interest rates will have to be higher.”

RJR Nabisco was one of the most active issues, falling 4 to 84 after a group headed by Forstmann Little & Co. said it would not bid for the food and tobacco company. The company faces bids from a management-led group and from the leveraged buyout specialist Kohlberg Kravis Roberts & Co.

Pillsbury Co., target of a takeover bid by Grand Metropolitan, also slipped, dropping 1 1/2 to 56 1/2. Interco Inc., sought by the Rales brothers of Washington, was down 1 3/8 at 63 7/8.

Plessey Co. stock gained 9 1/8 to 40 7/8 following news of a proposed joint takeover offer for the British electronics group from Britain’s General Electric Co. and Siemens AG of West Germany. Plessey said it rejected the $3-billion bid.

Among other actively traded blue chips, American Telephone & Telegraph dropped 5/8 to 27 5/8; Exxon fell 1 7/8 to 41; International Business Machines lost 2 to 115 1/2; General Electric dropped 1 1/2 to 42 1/2, and Merck lost 1 1/2 to 53 5/8.

Springs Industries gained 1 3/4 to 29. The company’s majority owners postponed a planned offering of 2 million shares of the stock.

The Wilshire index of 5,000 equities closed at 2,610.869, down 39.929 or 1.51% from the preceding trading day.

The NYSE’s composite index of all its listed common stocks dropped 2.37 to 148.96.

Standard & Poor’s industrial index fell 5.60 to 302.84, and S&P;’s 500-stock composite index was down 4.52 at 263.82.

The NASDAQ composite index for the over-the-counter market dropped 4.34 to 367.79. At the American Stock Exchange, the market value index closed at 286.30, down 3.29.

In foreign trading, Tokyo’s stock market leaped to a record closing high for the fourth straight trading day on Wednesday as general optimism spread, brokers said. The Nikkei 225-share index rose 166.71 points to a new closing high of 28,996.12. It closed up 308.51 at its previous closing high of 28,829.41 on Tuesday.

Share prices also finished slightly higher on the London Stock Exchange after a moderately active session. The Financial Times 100-share index rose 5 points to 1,807.3.

Trade deficit narrows; Fed Chief Alan Greenspan urges a cut in federal deficit. Stories, Part I, Page 1.