Dow Falls 37.13, Erasing Gains of Last Week

The stock market lapsed into a steady decline Monday, pulling back after last week’s climb to its highest level since the 1987 crash.

Several individual stocks with operations or investments in China or nearby countries sold off sharply. But analysts said the conflict in Beijing and the ensuing break in Hong Kong stock prices did not appear to have any severe widespread impact on the U.S. market.

The Dow Jones average of 30 industrials, which had risen 27.20 points on Friday, fell 37.13 to 2,480.70.

Declining issues outnumbered advances by more than 3 to 2 in nationwide trading of New York Stock Exchange-listed stocks, with 609 up, 941 down and 450 unchanged.

Volume on the floor of the Big Board came to 163.42 million shares, down from 229.14 million in the previous session.

Windmere Corp. fell 3 3/4 to 15 1/4 in active trading and Lewis Galoob Toys lost 1 1/2 to 10 1/8. Both companies, which have production facilities in China, said their operations there had not been affected so far by the turmoil.

Traders Take Gains

Elsewhere, Hong Kong Telecommunications dropped 2 1/8 to 16 7/8.

Among publicly traded investment companies specializing in Asian markets, Taiwan Fund dropped 3 3/8 to 36 5/8; Korea Fund 2 3/4 to 31; Asia Pacific Fund 1 3/4 to 9 1/8, and Thai Fund 7/8 to 15 3/4.

Otherwise, analysts said, it appeared that traders were cashing in on the market’s recent gains, believing that it was due for at least a pause after its strong advance in recent months.

The domestic business and financial news background was generally positive, brokers noted. Numerous large banks lowered their prime lending rates from 11.5% to 11%.

And a monthly survey of corporate purchasing executives gave further support to the belief that the economy was slowing, thus presumably giving the Federal Reserve added incentive to relax its credit policy.

Losers among the blue chips included Boeing, down 3 1/8 at 75 5/8; General Electric, down 5/8 at 55 1/8; American Telephone & Telegraph, down 7/8 at 35 3/8, and International Business Machines, down 1 1/8 at 109.

3Com Corp. tumbled 7 7/8 to 19 3/4 in the over-the-counter market. The company said its earnings for the fiscal quarter ending this week would fall short of analysts’ estimates.

The Wilshire index of 5,000 equities closed at 3,181.284, down 27.355 from Friday’s close.

The NYSE’s composite index of all its listed common stocks dropped 1.60 to 179.89.

Japanese Stocks Decline

Standard & Poor’s industrial index fell 4.47 to 368.52, and S&P;’s 500-stock composite index was down 3.49 at 322.03.

The NASDAQ composite index for the over-the-counter market slumped 3.79 to 447.84. At the American Stock Exchange, the market-value index closed at 359.58, down 0.89.

The unrest in China also pushed Japanese stocks lower in extremely light turnover. The key 225-share Nikkei index fell 210.34 points or 0.62% to close at 33,457.08.

British share prices closed weak but off their lows in moderate trading. Dealers said the market had failed to rise strongly on the mid-session news that the Bundesbank did not raise West German interest rates. The Financial Times 100-share index closed 11.0 points lower at 2,103.4.

Currency

The dollar gained against most major currencies as investors turned to dollars in the face of the turmoil in the Chinese capital.

Political uncertainty in Iran following the weekend death of Ayatollah Ruhollah Khomeini also encouraged dollar purchases.

“Whenever there’s any kind of unrest anywhere, the tendency seems to be to buy U.S. dollars,” said Thomas Palladino, an assistant vice president at the New York office of Amsterdam Rotterdam Bank.

The dollar temporarily traded lower early in the day as bank after bank announced cuts in their prime lending rates to 11% from 11.5%.

The banks’ moves were widely anticipated given the apparent slowdown in consumer spending and overall economic activity.

Currency dealers resumed buying dollars, ignoring the possibility that lower U.S. interest rates might depress the dollar’s value against other currencies. Chandler said market sentiment still favors the dollar.

The prime rate changes were overshadowed by violent developments in Beijing where the government continued its crackdown on civilian demonstrators.

Analysts said the dollar also benefited from speculation that the leadership of Iran could pass into less radical hands, paving the way for greater cooperation among members of the Organization of Petroleum Exporting Countries. That pushed up crude oil prices, which are denominated in dollars.

In London, the dollar rose against the British pound. It cost $1.5815 to buy one pound, cheaper than $1.5900 late Friday. Later in New York, sterling fetched $1.5655 vs. $1.6040 late Friday.

Earlier in Tokyo, where trading ends before Europe’s business day begins, the dollar fell 1.15 yen to a closing 140.65 yen. But later, in London, it was quoted at 141.75 yen and in New York the dollar increased to 142.95 yen up from 140.50 yen on Friday.

Commodities

The political unrest in China stirred commodities markets, touching off a petroleum futures rally, depressing sugar prices and sending cotton futures tumbling to the daily trading limit.

“Everybody is working on the assumption that there will be little buying activity from China in the coming days,” said Arthur Stevenson, a Prudential-Bache Securities analyst. “The name of the game there now is survival--not buying sugar or cotton or grain or anything else.”

On other markets, grain futures closed mostly higher despite rumors a big Chinese buy was being postponed indefinitely. Coffee futures were battered by signs of discord at the International Coffee Organization meeting in London.

Sugar prices slid 0.16 cent to 0.23 cent lower on the New York Coffee, Sugar and Cocoa Exchange, with July at 11.25 cents a pound.

The market climbed late last week on reports that China was preparing a major buy in raw sugar, and fell Monday on the belief such a purchase was no longer imminent.

Cotton prices settled 2 cents lower across the board on the New York Cotton Exchange. The July contract closed at 65.36 cents a pound.

“China is a touchstone in this market,” said Ed Whitten, a trader with Balfour Maclaine Corp. in New York. “If they buy everybody gets excited, if they don’t buy everybody gets excited.”

Grain and soybeans futures were mostly higher on the Chicago Board of Trade. Word that the Chinese had postponed a buy of up to 1 million tons of wheat pressured the market early, but traders managed to recover and move up in light volume.

Credit

Government bond prices finished slightly higher, extending the market’s recent advance despite some profit-taking.

The 30-year Treasury bond edged up 1/16 point, or 63 cents for every $1,000 in face value, as its yield held steady at 8.43%, the same as Friday.

Contributing to the advance were the dollar’s strength and worries about the Chinese crisis, which sent short-term interest rates sharply lower as investors sought the relative security of U.S. government securities.

Interest rates in the credit market recently have receded to the lowest levels since March, 1988 amid widespread optimism that the apparent slowdown in economic activity will persuade the central bank to loosen its credit grip.

Several commercial banks lowered their prime lending rates on Monday by a half percentage point to 11%. Those moves were widely expected and had little impact on bond prices, according to Elliott Platt, fixed-income research director for the investment firm Donaldson, Lufkin & Jenrette Securities.

Platt said selling by traders who wanted to cash in on recent advances in the bond market limited some of the price gains.

In the secondary market for Treasury securities, prices of short-term governments were mixed with some rising 1/8 point and others falling 1/16 point, intermediates were up 1/16 point and long-term issues rose as much as 5/16 point, according to Telerate Inc., the financial information service.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The federal funds rate, the interest on overnight loans to banks, traded at 9.563%, unchanged from late Friday.

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