FINANCIAL MARKETS : STOCKS : Dow Drops 14 After Panama Issues Threat

The stock market fell back Friday after news that Panama considers itself at war with the United States triggered heavy computer-directed selling programs.

The market also was pressured by a poor trade figure early in the morning and the expiration of certain index futures and options contracts.

The Dow Jones index of 30 industrials finished 14.08 points lower at 2,739.55 after recovering from its session lows. For the week, it closed up 8.11 points.

Declining issues outnumbered advances by about 3 to 2 in nationwide trading of New York Stock Exchange-listed stocks, with 619 up, 924 down and 470 unchanged.

Early in the day, the government reported an unexpectedly large $10.2-billion October trade deficit, the largest monthly shortfall this year, but it said producer prices eased 0.1% in November.

Economists said the latter report eased concerns about inflation at the wholesale level, but by the end of the day it appeared that neither the stock nor the bond markets were convinced the news would prompt the Federal Reserve to ease credit.

“The market is losing patience with the Fed,” said William LeFevre, market strategist at Advest Inc. “Most people think the economy is slowing and could go into a recession unless the Fed acts.”

Analysts said an early decline in stock prices picked up speed after stories crossed financial news wires that Gen. Manuel A. Noriega had been named chief of government in Panama and was moving to confront a “state of war” arising from U.S. policies.

Stocks were buffeted around a bit by orders from professional traders engaged in computer-program strategies involving individual stocks and a series of expiring options and futures on stock indexes.

But the so-called triple witching hour, which comes on the third Friday of the last month of each calendar quarter, actually appeared to help the market cut its losses in late trading.

At its mid-afternoon low, the Dow index showed a drop of more than 43 points.

Big Board volume surged to 240.39 million shares from Thursday’s 178.70 million.

In Tokyo, share prices firmed to a record close in mixed, moderate trading after arbitragers won a tug-of-war with profit takers. The Nikkei 225-share average rose 90.34 points to a record close of 38,271.04.

Shares closed lower on the London Stock Exchange in quiet trading. The market showed a muted reaction to the latest British inflation figures, which were broadly in line with most forecasts. The Financial Times 100-share index closed 22.3 points off at 2,344.7.

CURRENCY Dollar Declines in Thin Trading The dollar finished mostly lower in dealings that remained thin despite the release of key economic data.

The government trade deficit and producer price index reports proved bearish for the dollar. A large deficit makes a case for a lower dollar, which helps improve the trade gap by making imports more expensive and exports cheaper.

After the figures were released, “the dollar came off fairly substantially,” said Bob Morrissey, senior trader at Bank of Boston’s New York office. The dollar fell below the critical 1.7210 level against the West German mark, leading traders to believe the currency is gathering momentum to move lower.

The news of Panama declaring that a “state of war” exists with the United States helped the dollar strengthen a bit.

In Tokyo, the dollar rose 0.23 Japanese yen to a closing 144.30 yen. Later in London, it was quoted at 144.10 yen. In New York, the dollar closed at 144.15 yen, unchanged from late Thursday.

In London, the British pound rose to $1.6055 from $1.5970 late Thursday. In New York, one pound cost $1.6030, more expensive than Thursday’s $1.6010.

CREDIT Bond Prices Lower on Economic News Bond prices were mostly lower as traders had little response to the government data giving further mixed signals on the economy.

The U.S. Treasury’s 30-year bond fell 1/32 point, or less than $1 for every $1,000 in face value. Its yield was unchanged from late Thursday at 7.85%.

The federal funds rate, the interest on overnight loans between banks, was quoted at 8.50%, down from 8.438% late Thursday.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds closed at 93 23/32, up 1/32 point. The average yield to maturity was unchanged at 7.24%.