STOCKS : Gorbachev Rumors Push Market Lower

Jolted by a news report that President Mikhail S. Gorbachev might resign as Soviet Communist Party chief, the stock market closed broadly lower Tuesday.

The unconfirmed report by Cable News Network around 2 p.m. EST said Gorbachev may step down as party leader but retain his post as president, “produced a technical bounce in the market. It was jerking all over the lot,” said Michael Metz, technical analyst for Oppenheimer & Co.

The Dow Jones index of 30 industrials finished the session 10.14 points lower at 2,543.24 after flip-flopping throughout the day.

Declining issues outpaced advancers by nearly 3 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,156 issues down, 399 up and 431 unchanged.

Big Board volume came to 186.03 million shares, up from 150.77 million in the previous session.

Analysts said the report about Gorbachev’s possible resignation on Cable News Network caused reactions throughout the financial markets. Stock prices became so volatile shortly after the 2 p.m. EST report that traders at one investment brokerage stopped trading temporarily until the market calmed down.

The Dow, which was heading lower during the afternoon, intensified its slide after the news report. Off more than 27 points at 2:30 p.m., the average jumped back into the plus column briefly before finishing lower at the close.

“We haven’t seen a market of this kind for some time. It’s pulsating, vibrating without any sense of direction,” said Charles Jensen, chief technical analyst for MKI Securities Corp. in New York.

Aside from the Gorbachev report, interest rates and concern about financing for takeovers remained the market’s chief worries.

Analysts said the market also interpreted remarks by Federal Reserve Chairman Alan Greenspan before the Joint Economic Committee in Washington as a sign that the central bank would not reduce interest rates any time soon.

Greenspan said the probability of a recession is less than 50%, lower than previously anticipated, and that the current rate of inflation is “unacceptable.”

Telecommunications stocks were among the losers Tuesday, with MCI Communications reporting the biggest hit, losing 3 1/8 to close at 31 1/4 in over-the-counter trading.

Though MCI’s fourth-quarter earnings were somewhat less than some analysts had expected, they still brought 1989 profit to a record $529 million, up from $334 million in 1988. Annual revenue increased to $6.47 billion, up from $5.14 billion. This led some market analysts to portray the drop as more symptomatic of the market’s current skittishness than of investor disappointment in telecommunications stocks.

On the other hand, the common stock of both American Telephone & Telegraph and United Telecommunications fell. AT&T; finished off 1 3/4 at 37 3/4; Kansas City-based United, parent of U S Sprint and local phone companies, fell 1 7/8 at 31 1/8.

In foreign trading, Tokyo stocks squeezed out moderate gains as the market tried to rally after recent losses. The key 225-share Nikkei index rose 41.97 points to close at 37,215.67.

In London, stocks fell slightly in thin trading , hurt by weakness on Wall Street. The Financial Times 100-share index was down 6.9 points to 2,321.9 at the close.

CREDIT Bonds Benefit From Market’s Unease Prices of U.S. Treasury bonds surged following the report that Gorbachev was considering resigning as Communist Party chief.

Government bonds, which had been down as much as 3/8 point, boomeranged after the mid-afternoon report and finished with gains of up to 1/4 point.

The Treasury’s closely watched 30-year bond finished 9/32 higher, a gain of about $2.81 per $1,000 face amount. That pushed the yield down to 8.55% from 8.57% on Monday.

The junk bond market, which declined sharply last Friday and again Monday, stabilized Tuesday because of a recovery in the price of high-yield RJR Nabisco bonds.

If the Gorbachev report turns out to be true, “the market effects will not be lasting,” speculated Bob Sbarra, senior vice president at Carroll McEntee & McGinley Inc. Such a resignation would merely mirror events elsewhere in Eastern Europe, where some leaders have resigned from Communist parties but hung on to government positions, he said.

Treasuries had weakened in the morning following Greenspan’s Congressional testimony in which the Federal Reserve chairman warned that inflation remained unacceptably high and said that the risk of recession had eased.

The federal funds rate, the interest rate banks charge each other on overnight loans, was at 8.25%, unchanged from late Monday.

In the corporate bond market, prices of high-yield issues, or junk bonds, steadied after two days of big declines. A recovery in the price of bonds issued by RJR Nabisco Inc., the bellwether for the market, helped stabilize prices, said Alan Schlesinger, head of junk bond trading at Donaldson, Lufkin & Jenrette Securities Corp.

RJR Nabisco’s 13.71% bonds due 2007 rose about 3 7/8 to 63 1/2 and its 13.71% bonds due 2009 rose about 2 7/8 to 68 1/2.

CURRENCY Dollar Posts Gains; Gold Prices Mixed The dollar jumped in panicky trading on the Gorbachev rumors. Gold prices were mixed. On New York’s Commodity Exchange, an ounce of gold fell $1 to close at $418.10. Republic National Bank later quoted a bid of $418.30 an ounce, up 10 cents from Monday.

In New York, the dollar soared to a high of 146 yen from 142.98 yen late Monday and to 1.7130 West German marks from 1.6770 marks the day before. The dollar eased somewhat by late afternoon but did not give up all its gains.

“It reached panic proportions,” said Mike Ballow, a currency markets analyst for Dean Witter Reynolds Inc.

COMMODITIES Sugar Plummets on Tight Supply News Sugar futures prices fell sharply on New York’s Coffee, Sugar & Cocoa Exchange after a rally prompted by a reduced world production forecast sputtered and failed.

On other commodity markets, grain and soybean futures fell; energy futures were mostly lower; livestock and meat futures were mixed, and precious metal futures retreated.

Sugar futures settled 0.36 to 0.46 cent lower, with the contract for delivery in March down 0.43 cent at 14.44 cents a pound.

The market rallied strongly early in the session after the West German statistical firm F. O. Licht released a revised 1989-90 world sugar production forecast of 106.5 million metric tons, about 1.2 million tons below its previous estimate.

Licht said crops in several countries had not lived up to expectations, and the resulting tightening of supplies created the potential for explosive upward price movement if a large consumer country such as the Soviet Union, China or India were to enter the world market as a buyer.