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Trade Data Depresses Stocks; Dow Dips 8.73

From Times Wire Services

A worse-than-expected trade deficit undermined the stock market Tuesday, driving the Dow Jones industrial index to a second decline after a nine-day rally.

The Dow index fell 8.73 points to 2,544.76.

Before the market opened, the Commerce Department announced that the nation’s merchandise trade deficit rose to $10.24 billion in May, well above expectations of a $9-billion gap.

Some analysts said the stock market, which opened lower and never recovered, showed underlying strength by holding up as well as it did.

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“It gives ground grudgingly. There’s still lots of cash on the sidelines,” said Alan Ackerman, a Gruntal & Co. analyst in New York.

Decliners Outpace Advancers

Still, two down sessions in a row have put a chill on the July rally, which saw the Dow rise 114.76 from the end of June through last Friday’s close.

Tuesday’s market decline, although modest, was more pronounced than Monday’s, when the Dow slipped just 1.33 and advancing stocks narrowly outnumbered declining ones.

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On Tuesday, decliners outnumbered advancers by about 11 to 8 in nationwide trading of New York Stock Exchange.

Volume on the floor of the Big Board came to 152.35 million shares, up from 131.96 million in the previous session.

Marion Laboratories led the list of most actively traded NYSE issues, rising 1 to 34 1/2, after the announcement Tuesday that Dow Chemical had signed a definitive agreement to acquire 67% of its stock over the next two or three years.

More than 13 million Marion shares changed hands in composite dealings, adding significantly to overall trading volume. Dow Chemical, meanwhile, fell 1 5/8 at 86 3/4.

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International Business Machines, a blue chip bellwether, fell 1 1/4 to 114 3/4 despite an earnings report that met expectations. The 39% quarterly gain was largely the result of special factors. The stock had risen by an identical amount Monday.

Apple Computer fell 1 1/2 to 39 1/4 in heavy over-the-counter trading after reporting a 5.3% earnings gain, below market expectations.

Warner Communications rose 1/4 to 65 5/8, Paramount Communications rose 3/4 to 57 and Time fell 3 to 138. The companies are embroiled in a three-way takeover battle.

In Tokyo, stocks eased as anxiety ahead of Japan’s upper house elections on Sunday continued to paralyze the stock market. The Nikkei 225-share index retreated 112.49 points to close at 33,343.73.

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Share prices ended slightly lower on the London Stock Exchange, as the market absorbed news of the widened U.S. trade deficit. Trading closed at an hour earlier than usual, owing to a 24-hour strike by British public transport workers. The 100-share Financial Times index ended down 1.8 points at 2,273.1.

Credit

Bond prices slumped after the government released its report on U.S. trade deficit figures, but analysts said some of the decline was a technical correction following the credit market’s recent gains.

The Treasury’s key 30-year bond, which lost 1/2 point or $5 per $1,000 face amount Monday, fell another 13/16, or about $8.13 per $1,000 face amount Its yield, which moves inversely to price, jumped to 8.19% from 8.12% late Monday.

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The credit markets were particularly shaken by a surge in imports, which investors believed could portend increased consumer demand and a reinvigorated economy, said Ward McCarthy, a managing director of Stone & McCarthy Research Associates Inc.

Traders fear that if the economy surges, the Federal Reserve Board is likely to tighten credit, driving interest rates higher and bond prices lower.

McCarthy, calling Tuesday’s losses a correction, said they were partly because the market has “gone too far too long without some kind of a setback.”

In the secondary market for Treasury bonds, prices of short-term governments fell about 3/16 point, intermediate maturities fell 5/16 point to 3/8 point and long-term issues fell 11/16 point, Telerate Inc., a financial information service, reported.

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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 Shearson Lehman Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 3.94 to 1,182.38.

Industrial and utility corporate bonds also weakened. Moody’s investment grade corporate bond index, which measures return on a portfolio of 80 corporate bonds with maturities of five years or longer, fell 1.01 to 328.98.

The federal funds rate, the interest on overnight loans between banks, traded at 9.188%, down from 9.25% late Monday.

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Currency

The dollar lost value against most major currencies in U.S. dealings that were hectic at times as traders reacted to the unexpectedly poor trade report.

Earlier, on foreign exchange markets abroad, the dollar finished mixed.

Gold prices moved modestly higher at home after a mixed showing overseas.

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On the Commodity Exchange in New York, gold bullion for current delivery rose $1.60 to $372.60 an ounce. Republic National Bank of New York quoted a bid of $371.90 for an ounce of bullion at 4 p.m. EDT, up $1.60 from Monday’s late bid.

Simon Fischer, a vice president at Bear, Stearns & Co., said currency trading was brisk immediately after the Commerce Department issued its trade report.

News in the report that imports grew 4.3% to a record $40.71 billion in May implied that the U.S. economy remains strong because it is drawing in vast quantities of foreign goods.

This point fed bullish sentiment toward the dollar because it suggested that the Federal Reserve Board might be less inclined to drive down interest rates.

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