STOCKS : High Oil Prices, Gloomy Outlook Send Dow Down 39 to 4-Week Low

Stock prices closed at four-week lows Thursday, depressed by a jump in crude oil prices to a new seven-year high of $35 a barrel and growing fears that the economy may be heading into recession.

The Dow Jones industrial average closed down 39.11, or 1.5%, to 2,518.32. It traded briefly with a loss of 50.50 at 2,506.93 before rallying in the final minutes of trading.

“The outlook for the most important pieces of the investment puzzle--inflation and interest rates--is grim,” said Hugh Johnson, chief investment officer at First Albany Corp.

In the broader market, declining issues outnumbered advances by more than 4 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 300 up, 1,258 down and 427 unchanged.

Big Board volume was 145.10 million shares, against Wednesday’s 147.53 million. Many traders were off for Rosh Hashanah, the Jewish New Year holiday.

“There’s very negative sentiment as far as Fed Chairman (Alan) Greenspan’s comments (Wednesday) and the fact that overseas markets were weak,” said Alice Sadlo of McDonald & Co.

The head of the Federal Reserve Board painted a gloomy portrait of the economy, saying that the Persian Gulf crisis and the resulting jump in oil prices had added “new and substantial risks” to a weak national economy.

The Fed chief’s comments also suggested that because of inflationary worries, the central bank’s monetary policy would remain tight.

Unresolved questions about the U.S. budget talks and the Mideast crisis further deepened the market’s pessimism.

Crude oil for October delivery on the New York Mercantile Exchange shot up to $35 a barrel before settling to close at $34.71, with a gain of $1.53.

Brokers also said would-be buyers apparently were scared off by today’s witching hour, which will mark the last trading in a series of expiring options and futures on stock indexes. Such occasions have sometimes produced volatile spells in the market.

Among the market highlights:

* Many high-profile, highly liquid stocks took large hits, suggesting that investors were running out of patience even with some of the year’s best-loved stocks. Leading the Dow lower were Coca-Cola, off 1 to 38 3/4; 3M, off 1 5/8 to 77 7/8; Philip Morris, off 1 to 45, and Merck, off 1 1/8 to 75 3/4.

* Other former favorites that suffered substantial declines included Gillette, down 3 1/2 to 51 1/8; Home Depot, down 1 5/8 to 32 1/4, Disney, off 1 1/2 to 88 7/8, and Waste Management, off 1 1/2 to 33 1/8.

* Recession concerns showed in sharp hits to steelmaker Nucor, off 2 5/8 to 56 1/8, Illinois Tool Works, down 1 1/4 to 43, and Westinghouse, off 5/8 to a new 52-week low of 27 1/2. But Bethlehem Steel rose 1/8 to 11 3/4--the only Dow component stock to gain for the day.

* Retailers were hard hit on consumer spending concerns. Carter Hawley plunged 3/4 to 2 1/8, May lost 1 1/2 to 40 7/8, Gap lost 1 7/8 to 46 3/8 and Wet Seal dropped 1 to 12.

* Bank stocks fell anew. Security Pacific dropped 1 1/8 to 25 1/2 after registering to sell $2.5 billion of new debt. BankAmerica lost 5/8 to 20 3/4, Citicorp slumped 5/8 to 16 5/8 and Chase lost 1/8 to 13 3/4.

* Oil-related stocks were mostly lower, despite oil’s surge. Losers included Dresser Industries, down 2 1/8 to 47 1/2, Oryx, off 1 3/8 to 47 7/8, and Arco, down 7/8 to 140.

* Big percentage losers among Southland stocks included Teledyne, off 2 1/8 to 16 1/2, Digital Sound, off 1/2 to 2, and Software Toolworks, down 1 to 8 3/8.

* MBIA fell 3 to 25 1/2. The stock of the municipal-bond insurer has sold off lately on increasing worries about the financial health of Philadelphia and possibly some other municipalities and states.

Overseas, Tokyo stocks fell to a new closing low for 1990 for the second day in succession. The 225-share Nikkei index slipped 123.19 to 23,602.98 after falling 231.06 on Wednesday. Early today, the Nikkei lost another 310 points to 23,292.80.

Prices dropped sharply on the London Stock Exchange, breaking the “psychological barrier” of 2,030 in the key Financial Times-Stock Exchange 100-share index. The index closed down 48.9, or 2.4%, at 2,016.9.

In Frankfurt, shares fell 2% to the lowest level since the Berlin Wall was breached last November, as worries about the situation in the Gulf continued to depress prices. The 30-share DAX index fell 30.03 to 1,457.51.

CREDIT Bond Prices Dip in Slow Trading Day Government bond prices sagged in sluggish trading as oil prices resumed their climb and fanned inflation fears. Volume was light because many traders took the day off for Rosh Hashanah.

Inflation jitters mostly jolted long-term bonds, while shorter maturities ended with minor losses.

The market’s benchmark issue, the 30-year Treasury bond, skidded 11/32 point, or about $3.43 per $1,000 face amount. Its yield advanced to 9.03% from 9% late Wednesday.

The federal funds rate, the interest banks charge one another for overnight loans, was quoted at 8.063%, up from 7.75% late Wednesday.

CURRENCY Rampant Rumors Help Dollar Gain The dollar mostly gained ground in light but volatile dealings on world currency markets Thursday.

Traders said currencies changed hands in violent spurts that were driven by rumors. Speculation that Japan was about to raise interest rates sent “people rushing to buy yen for the high-yield attraction,” said Gilbert Cisneros, a trader at Bank of Boston.

But when the rumor fizzled, traders “got caught short and dumped yen to buy dollars,” he said.

The dollar bought 1.577 German marks late in New York, up from 1.571 late Wednesday. It rose to 137.65 Japanese yen from 137.50. The British pound fell against the dollar to $1.8755 from $1.8845.

COMMODITIES Report Shows More Cattle; Futures Drop Cattle futures finished lower after a monthly report that showed 5% more cattle on feedlots as of Sept. 1 than on the same date a year ago in the nation’s seven largest cattle-producing states.

On other commodity markets, pork futures rose, grains and soybeans were mixed and gold rose with oil.

Tom Morgan, president of Sterling Research Corp. in Arlington Heights, Ill., said the drop in cattle futures came as no surprise, but he indicated that there is disagreement among some traders and analysts about where the market is headed.

He said relatively slow marketings of fattened cattle off feedlots in August resulted in a backlog that will translate into a slight bulge in supplies of market-ready cattle by November, which could drive prices lower.

Pork futures gained amid reports of higher cash hog prices, but Morgan predicted that the rise would be temporary because it contradicts the normal seasonal pattern.

Live cattle settled 0.05 to 0.27 cent lower, with October at 79.40 cents a pound; feeder cattle were 0.30 cent lower to 0.10 cent higher, with September at 89.47 cents a pound; live hogs were 0.05 cent lower to 0.63 cent higher, with October at 54.22 cents a pound; frozen pork bellies were 1 cent to 1.48 cents higher, with February at 57.40 cents a pound.

Gold for September rose $3.10 to $389.10 an ounce. September silver added 0.9 cent to $4.77.

Market Roundup, D6