STOCKS : Market Sinks as Rates Jump; Dow Slips 32.89

A new round of increases in interest rates helped push stock prices broadly lower Wednesday as Wall Street registered little enthusiasm over the latest news on the nation’s international trade balance.

The Dow Jones index of 30 industrials tumbled 32.89 points to 2,732.88, giving back nearly all of its 36.04-point gain over the three previous sessions.

In the broader market, declining issues outnumbered advances by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks. Big Board volume was 147.13 million shares, up from Tuesday’s 127.99 million.

The Commerce Department reported that the U.S. trade deficit in February was the narrowest in more than six years. Imports exceeded exports by $6.49 billion, down from $9.32 billion in January. Analysts said that held out the prospect of stronger-than-expected economic growth and improved profits at many firms with substantial international businesses.

At the same time, however, it touched off fresh worries about the outlook for interest rates.

Merck rose 5/8 to 74 3/8. The drug firm reported first-quarter earnings of $1.03 a share, up from 86 cents a year earlier. But most blue chips were lower. IBM lost 1 1/4 to 109 7/8, Disney fell 1 5/8 to 112 5/8, and Coca-Cola lost 1 to 79 1/4.

Elsewhere, Neutrogena tumbled 2 5/8 to 19 1/2 after predicting lower earnings in the current quarter. Jacobs Engineering fell 1 1/2 to 22 5/8 despite reporting a 41% rise in first-quarter profit, to 31 cents a share.

AST Research jumped 2 to 23 1/4 after reporting quarterly earnings of 78 cents a share, versus a loss.

Japanese issues traded in this country gained on the heels of a rally in Tokyo. TDK climbed 3 1/4 to 43 1/2, Matsushita added 3 3/8 to 138 3/8 and Canon rose 1 7/8 to 55 5/8.

Precious-metals stocks also advanced. Newmont Gold rose 2 to 42 1/8, Homestake gained 1 to 17 3/4, and ASA rose 2 1/8 to 51 7/8.

In Tokyo on Wednesday, the Nikkei 225-share index closed at 29,249.06, up 787.46 points, or 2.77%. In London, stocks slipped in quiet trading. The Financial Times 100-share index closed down 8.6 points at 2,205.9. In Frankfurt, the DAX index tumbled 24.59 points to 1,889.76 in active trading as traders dumped firms with Brazilian operations.

CREDIT Bond Prices Plunge on Inflation Fears Bond prices dropped sharply as the market ignored the favorable trade report amid worries about inflation.

Traders said they were also concerned about upcoming bond issues and rumors that Japanese investors were selling large amounts of U.S. government bonds.

The Treasury’s 30-year bond fell 1 9/32 point, or about $12.80 per $1,000 face amount. Its yield, which rises as prices fall, jumped to 8.83% from 8.71% Tuesday.

Traders remained concerned about a government report Tuesday that the inflation rate for the first three months of 1990 was the highest in almost eight years, said Kathleen Stephansen, a senior economist at Donaldson, Lufkin & Jenrette Securities. Inflation erodes the value of fixed-income securities such as bonds.

“The overwhelming factor is this inflation concern,” Stephansen said. “Despite the fact that you might argue the economy may be weaker in the future, the Fed has very little leeway given the inflation figure.”

Rumors about Japanese investors dumping T-bonds weren’t substantiated, but traders said they helped set the market’s tone.

Concern also was expressed about whether the market could absorb upcoming government debt issues. The government announced Wednesday that it will sell $10.5 billion worth of two-year notes next week. Next month, the government is expected to sell $30 billion of notes and bonds in a re-funding.

The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.375%, unchanged from late Tuesday.

CURRENCY Dollar Falls Despite Rosier Trade Data The dollar lost ground against all major currencies in heavy trading despite new data showing that the nation’s huge trade imbalance had improved significantly in February.

Gold prices inched up.

On the Commodity Exchange in New York, gold bullion for current delivery settled at $376.10 an ounce, 90 cents higher than late Tuesday’s close. Republic National Bank in New York quoted a late bid for gold at $376.30, up $1.30.

While the trade report would be considered bullish for the dollar, since it means further reductions in the currency may not be needed to improve the balance of trade, dealers showed little enthusiasm.

“The numbers were certainly strong . . . but people expected stronger numbers,” said J. Thomas Stanley, manager of corporate foreign exchange for Chemical New York Capital Markets Group.

Stanley said the dollar had firmed prior to the trade report but fell back after its release.

“There was the wildest speculation about the trade figures and many people were apparently even more optimistic than the data allowed,” added a trader at a large European bank in West Germany.

Also depressing the dollar, traders said, were rumors that some Japanese financial institutions might be considering selling more of their U.S. bond holdings.

In Tokyo, where trading ends before Europe’s business day begins, the dollar rose to 159.87 Japanese yen from 159.83 yen Tuesday. It traded at 159.15 yen in London, and at 158.125 yen in New York, down from 159.685 Tuesday.

The dollar was weaker against the British pound. Sterling rose to $1.6347 from $1.6340 in London, and to $1.6400 from $1.6383 in New York.

COMMODITIES Oil Skid Puts Price Below $17 a Barrel Crude oil futures prices settled below $17 a barrel for the first time in nearly 16 months Wednesday on the New York Mercantile Exchange as prices fell in response to the lack of a strong OPEC response to the worldwide oil glut.

On other commodity markets, sugar futures surged; grains and soybeans were mixed; precious metals were mixed, and livestock and meat futures were mixed.

West Texas Intermediate crude oil futures settled 21 to 48 cents lower in New York, with the contract for delivery in May at $16.96 a barrel. It was the lowest settlement price for a near-month crude oil contract since Dec. 29, 1988, although crude traded as low as $16.25 on April 11.

Heating oil futures finished 0.87 cent to 1.51 cents lower, with May at 52.69 cents a gallon; unleaded gasoline was 0.45 to 0.94 cent lower, with May at 59.55 cents a gallon.

Oil traders were unimpressed with a vague call by three OPEC heavyweights for cutting back on the overproduction of crude oil.