Dow Dips 1.25 After Profit Taking Chills Early Rally

The stock market closed slightly lower Tuesday, erasing the gains of a morning rally on profit taking and weakness in bonds and the dollar.

The Dow Jones index of 30 industrials, up more than 15 points in the early going, lost 1.25 to close at 2,281.25.

Advancing issues outnumbered declines by about 8 to 7 in nationwide trading of New York Stock Exchange-listed stocks.

Big Board volume totaled 149.56 million shares, up from 143.52 million in the previous session.

The market has been struggling of late amid worries about inflation and rising interest rates.

Rates rose in the credit markets Tuesday after the Commerce Department reported that retail sales rose 0.6% in January, slightly above expectations.

Analysts said some traders took the strong growth in retail sales as a fresh bit of evidence in the case for tighter credit.

Investors also seemed to be looking ahead uneasily to a series of other government reports due later this week, including monthly data Friday on the nation’s international trade position for December.

In foreign trading, share prices on the Tokyo Stock Exchange ended slightly lower on concerns about the difficult situation facing Japan’s ruling Liberal Democratic Party, which is suffering from a drop in public support. The Nikkei 225-share index eased 2.43 to 31,982.89, adding to Monday’s 146.67-point loss.

In London, stock prices closed higher, lifted by some heavy futures-related buying and a strong early trend on Wall Street. The Financial Times 100-share index closed 16.4 points higher at 2,049.1.

CREDIT

Bond prices also finished lower, pulled down by the sagging dollar in world currency trading.

The Treasury’s 30-year bond lost about 1/2 point, or $5 for every $1,000 in face value. Its yield rose to 9.11% from 9.06% late Monday.

Bond prices started the day by advancing, buoyed by news of the better-than-expected retail sales in January.

“It gave some buoyancy to bond buying,” said John Sebastian, executive vice president of Clayton Brown & Associates in Chicago.

Analysts said bonds turned lower around midday, however, pressured by the retreat of the dollar. A weaker U.S. currency lowers the value of dollar-denominated securities such as bonds and notes.

In the secondary market for Treasury bonds, prices of short-term government issues slipped 1/32 point to 1/8 point, intermediate maturities declined 1/8 point to 7/32 point and long-term issues dropped 7/16 point, according to Telerate, a financial data service.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 9.25%, unchanged from late Monday.

CURRENCY

The dollar dropped against most major foreign currencies in a selloff inspired in part by speculation that the White House may be at odds with the Federal Reserve Board over interest rate policy.

Gold prices were mixed. Republic National Bank of New York quoted a gold bid of $384.40 an ounce at 4 p.m. EST, down from $385.20 late Monday.

Dealers dumped dollars in favor of West German marks, reasoning that evidence of rising inflation in that country might induce the government to drive interest rates higher. Higher West German rates would enhance returns on mark-denominated holdings.

As trading wound down in New York, the dollar was reported at 1.84325 marks, compared to 1.8677 late Monday.

The dollar came under additional selling pressure as dealers reacted to comments by President Bush in a Wall Street Journal interview.

Bush said he opposes further tightening in credit conditions to combat inflation.

Fred Barth, a first vice president at Prudential-Bache Securities Inc., said Bush’s position seemed to differ with that of the central bank even though the President said in the interview that he and Fed Chairman Alan Greenspan are not “far apart at all.”

“Some people were disturbed by President Bush’s comments,” Barth said. “There may be a little friction between the White House and the Federal Reserve.”

In London, one British pound closed at $1.7588, more expensive for buyers than Monday’s late $1.7495.

Later, in New York, a pound fetched $1.77375, compared to $1.7525 Monday.

Earlier in Tokyo, the dollar closed at 127.20 Japanese yen, down from 128.30 yen. In London, the dollar traded higher at 127.37 yen.

Other late dollar rates in New York, compared to levels late Monday, included: 126.305 Japanese yen, down from 128.07; 1.56325 Swiss francs, down from 1.58775; 1.1835 Canadian dollars, down from 1.1860, and 6.2715 French francs, down from 6.2855.

COMMODITIES

Soybean and corn futures rose sharply on the Chicago Board of Trade, bolstered by talk of overseas demand for both commodities.

In other markets, cattle futures mostly were lower, pork mostly was higher, precious metals were mixed and energy futures mostly were lower.

Soybean futures soared at least 12 cents higher during the session for the three contracts pegged for delivery in March, May and July, then settled about 11 cents higher.

Prices were supported by talk of renewed demand for soy products in Europe and a feeling that the futures market has been oversold lately, said Jerry Gidel, research director in Chicago of LIT America Inc.

Export figures Monday that were on the high side of expectations encouraged buying in the CBOT corn pit, Gidel said.

“There also were rumors of new Russian interest in the corn market,” said Steve Freed, grain analyst in Chicago with Dean Witter Reynolds.

Recent rains in Midwest growing areas weighed on wheat futures trading, traders said.