STOCKS : UAL Dive Sours Market; Dow Down 12

A huge drop in the price of UAL Corp. shares pushed blue chip stocks lower Tuesday, while utility stocks continued to surge.

The Dow Jones industrial index closed down 12.13 points to 2,905.20, after rallying for much of the day.

“What just killed it was the incredible plunge in United Airlines. It just cast a pall over everything and everybody,” said Ralph Bloch, technical analyst at Raymond James & Co.

Sentiment was also negative on news that the Chicago purchasing managers’ index fell to 48.3% in July from 53.5% in June. The data heightened worries about weakness in the economy. An index reading below 50% could signal a recession.

Still, the broad market didn’t suffer terribly Tuesday. The Standard & Poor’s 500 index gained 0.60 to 356.15. Big Board volume rose to 173.8 million shares, up from 146.5 million Monday. Advances led declines 799 to 715 in New York Stock Exchange trading.

The big negative was a 16 7/8-point plunge in UAL, the Chicago-based parent of United Airlines, to 140. American Banker newspaper said Tuesday that Citicorp and Chase Manhattan didn’t attend a meeting last week to negotiate the funding of UAL’s planned multibillion-dollar employee buyout deal.

Only a day earlier, sources said Chemical Banking had tentatively withdrawn from the deal.

The collapse of the deal could spark new worries over banks’ unwillingness to extend credit in a weakening economy. Meanwhile, the banks themselves were socked again Tuesday on fears of further loan losses. California banks were especially hard hit on real estate worries. Wells Fargo plunged 3 3/8 to 68 1/2, Security Pacific lost 1 1/4 to 31 5/8 and First Interstate dropped 2 1/8 to 33.

Many S&Ls; also suffered. CalFed fell 1 to 10 3/8, and Downey Savings lost 1/2 to 15 3/4.

Utilities, however, rallied for a second day on expectations of lower interest rates. Con Ed rose 1 to 25, SCE Corp. added 1/2 to 37 7/8 and Detroit Edison rose 7/8 to 28 3/4.

Strength in oil and oil-service stocks continued to provide the market with some support.

Jonathan Dodd, technical analyst at Dean Witter, said he expects the uneven market activity to continue. “I think you’re going to get into this choppy period in the market after dropping 62 points last week. After a drop like that, the market gets kind of unsettled.”

Other highlights:

* Cetus, the genetic engineering firm, fell 3 3/4 to 10 3/8 in response to a regulatory delay in approving a drug the company has developed to treat kidney cancer. Immunex fell 4 to 27 after the government asked for more data regarding a drug the company has developed to treat bone marrow transplant failure.

But Biogen soared 3 1/8 to 26 3/4 after the government approved a new hepatitis treatment developed by the company and Schering Plough, which rose 3/8 to 48 7/8.

* Among oil-service stocks, Schlumberger rose 2 1/4 to 65 3/8, McDermott gained 1 5/8 to 32 7/8 and Halliburton added 1 3/8 to 54 7/8. Among oil producers, Arco gained 1 3/8 to 129 1/8. Chevron, Exxon and Texaco, components of the Dow 30 index, gained 1 1/4 to 79 3/8, 1 1/8 to 51 7/8 and 3/8 to 63 1/4, respectively.

* Diversified Energies rose 5 7/8 to 35 on a stock-swap takeover bid from Arkla.

* Student Loan Marketing slumped 2 7/8 to 42 3/8 after saying it may lend more money to the troubled Higher Education Assistance Foundation.

Stock prices on the Tokyo Stock Exchange rebounded in nervous trading, ending a seven-day string of losses, on index-linked buying aided by a firmer yen and bond prices, brokers said. The blue chip Nikkei 225-share index, which tumbled 420.53 Monday, climbed 592.71, or nearly 2%, to 31,035.66.

In London, stock prices finished higher in a quiet session. The Financial Times 100-share index was up 9.7 to 2,326.2, In Frankfurt, the 30-share DAX index rose 7.43 to 1,919.12.

CREDIT Bond Prices Mixed on Economic News Treasury bond prices were mixed on varying signals about the course of the economy. Long-term bonds inched lower, while shorter-term issues posted gains.

A sharp rise in new home sales dampened the idea that the economy is heading toward recession, but the report from Chicago-area purchasing managers reinforced a notion of sluggish activity.

The Treasury’s 30-year bond fell 1/32 point, or 31 cents per $1,000 face amount. Its yield rose to 8.41% from 8.40% Monday.

The 30-year bond had gained more than $10 since last Friday, when the government’s report of a meager rise in the gross national product reinforced a belief that the economy was slowing and interest rates were likely to fall.

The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.063%, up from 7.938% Monday.

CURRENCY Dollar Drops to a 2 1/2-Year Low Expectations of lower interest rates squashed the dollar Tuesday to a 2 1/2-year low against the German mark. Selling “developed a momentum of its own,” said trader Bill English at Banca Nazionale Dell’Agricoltura.

In late New York trading, the U.S. currency bought 1.5875 marks, off nearly 2 pfennigs from 1.6045 marks Monday. The dollar is careening toward its recent low of 1.5620 marks on Jan. 4, 1988.

The dollar also lost more than two Japanese yen to 145.75, lowest in five months, from 147.85 Monday. “The trend is clear,” said William Arnold at Chemical Bank.

The dollar dropped early after Federal Reserve governor Martha Seger was quoted as saying that recent easing of interest rates by the Fed may not be sufficient.

Lower rates would tend to boost the sluggish U.S. economy but would also make dollar-denominated investments less attractive.

“Lower interest rates broke the dollar’s back,” said Chuck Spence at First Interstate Bank. “With no sign of intervention (supporting the dollar) some panic selling emerged.”

“There is no reason to buy the dollar,” said Frank Pusateri, a vice president at the Bank of Boston.

British sterling also continued to climb against the dollar. The pound rose to $1.8635 late in New York from $1.8465 late Monday.

COMMODITIES Platinum Futures Up $10.80 an Ounce Platinum futures prices surged amid a bevy of bullish factors, including signs of buying by the world’s biggest platinum jewelry consumers, the Japanese.

On other commodity markets, other precious metals were mixed, energy futures rose, livestock and meat futures advanced, and grains and soybeans were mixed.

Because of a data transmission problem, trading was halted temporarily at the Commodity Exchange, the nation’s main metals market; the New York Mercantile Exchange, the main oil market; the Coffee, Sugar and Cocoa Exchange; the Cotton Exchange, and the New York Futures Exchange.

Platinum futures settled $10.80 higher across the board on the New York Merc, with the contract for delivery in October at $485.20 an ounce.

The powerful rally did not extend to gold and silver futures . Gold settled $2.20 to $2.60 higher, with August at $370 an ounce; silver was 1.5 to 1.8 cents lower, with August at $4.787.

Crude oil for near-term delivery rose strongly on the New York Merc on reports that Iraq had amassed 100,000 troops on Kuwait’s border. West Texas Intermediate crude oil settled 9 cents lower to 48 cents higher with September at $20.69 a barrel.

Tables begin on D8.

HOW STOCKS DID IN JULY

The blue chip Dow industrials managed to eke out a small gain in July, but all other major market indexes lost ground for the month. High-tech stocks, and small stocks in general, were worst hit.

Percentage change Index July close July Yr. to date Dow industrials 2,905.20 +0.9% +5.5% S&P; 500 356.15 -0.5% +0.8% NYSE composite 194.60 -0.5% -0.2% S&P; utilities 140.24 -0.8% -10.3% Wilshire 5,000 3,384.37 -1.2% -1.0% AMEX market value 353.60 -2.1% -6.5% S&P; transports 267.91 -2.9% -3.8% NASD OTC composite 438.24 -5.2% -3.6% H&Q; growth-technology 667.29 -6.9% +8.1%