STOCKS : Dow Falls 5.94; Trading Heavy on Big Board

Blue chip stocks ended modestly lower Friday after a day of volatile, heavy trading caused largely by computer-driven programs and the expiration of certain stock options and stock index futures.

The Dow Jones industrial index fell 5.94 points to 2,512.38. For the week, the widely watched Dow was off 51.73, or 2%.

Declining issues outnumbered advances by more than 3 to 2 in nationwide trading of New York Stock Exchange-listed stocks, with 595 up, 928 down and 471 unchanged.

Big Board volume surged to 201.05 million shares, the busiest day since Aug. 23. A total of 145.10 million shares traded Thursday.

The market remained under heavy pressure, burdened by another sharp spike in the price of crude oil and a selloff in the bond market, analysts said.

November crude oil rose $2.01 on the New York Mercantile Exchange, closing at a nine-year high of $35.43 a barrel.

“It’s been a nasty day and a nasty week,” said Alfred Goldman, director of technical research at A. G. Edwards. “There’s going to be more selling on Monday because we’re going out negative for the week.”

Investors, paralyzed by Mideast tensions and worries about the U.S. economy, got a fresh dose of grim news when Chase Manhattan Bank announced that it will charge $1 billion against third-quarter earnings, lay off 5,000 people and cut its dividend in half.

Chase’s troubles underscore the deepening concerns about the nation’s banking system, said Hugh Johnson, chief investment officer at First Albany Corp.

“It’s hard to see how a banking system is going to respond to any help from the Federal Reserve under these conditions,” Johnson said.

However, Chase’s announcement may have helped bring the Dow index off its lows by alleviating rampant speculation about the bank and its prospects, said Dean Witter chief technical analyst Phil Roth.

“After that (Chase’s announcement) happened, the market breathed a little sigh of relief. It cleared the air,” Roth said. In addition, late option expirations leaned toward the buy side, boosting blue chips slightly.

But additional selling might strike stocks next week as investors do some “reverse window dressing” at the end of the quarter, analysts said.

“I think you’ll have to expect some window dressing, but it might take the form of selling,” Roth said.

Johnson agreed, saying portfolio managers will be reluctant to show large equity positions after the stock market’s dismal performance this quarter.

Among market highlights:

* Chase Manhattan fell 1 to 12 3/4. Other bank shares also turned in weak performances. Manufacturers Hanover fell 2 7/8 to 23, Citicorp dropped 7/8 to 15 3/4 and Chemical Banking slipped 7/8 to 16 7/8.

* Scott Paper fell 6 7/8 to 34 3/8 as analysts lowered earnings estimates.

* Milton Roy shot up 3 3/4 to 26 3/4. Sundstrand Corp. said it entered into a definitive agreement to merge with the technical instrument maker for $28 a share, or $128 million.

* Corroon & Black fell 1 5/8 to 29 1/4 after Aon Corp. withdrew its $40-a-share bid, which was rejected by the ball bearing maker.

* Among top performers in the oil sector were Murphy Oil Corp., up 1 1/2 to 47 3/8; Mobil Corp., up 1 1/4 to 67, and Atlantic Richfield, up 7/8 to 140 7/8.

* Among actively traded blue chips, General Motors dropped 1/4 to 36 5/8, International Business Machines 1 1/8 to 106 3/4, Philip Morris 1/4 to 44 3/4 and Boeing 5/8 to 43 1/4.

* On the plus side, General Electric rose 3/4 to 55 7/8, and American Telephone & Telegraph gained 7/8 to 31 3/8.

Tokyo stocks closed with a slight gain Friday, helped by window dressing by financial institutions on the last day of trading for September delivery. The 225-share Nikkei index gained 174.85 points to close at 23,777.83.

Share prices ended higher and at the day’s peaks on London’s Stock Exchange. The Financial Times 100-share index closed up 8.6 points at 2,025.5.

West German shares swung widely in volatile trading, with the 30-share DAX index losing 10.94 points to 1,446.57.

CREDIT

Oil, Budget News Helps Deflate Bonds

Bond prices fell sharply in quiet trading as crude oil prices surged and prospects dimmed for a federal budget agreement any time soon.

The Treasury’s bellwether 30-year bond fell 3/4 point, or $7.50 per $1,000 face amount. Its yield, which rises when the price falls, climbed to 9.11% from 9.03% late Thursday.

Rising prices for crude oil since the Aug. 2 Iraqi invasion of Kuwait have intensified the bond market’s concerns about inflation.

Inflation carries a double threat for bonds: It erodes their value, and it lessens the likelihood that the Federal Reserve will allow interest rates to fall.

Bond traders have been hoping that the Fed would nudge rates lower because that would move bond prices higher. But the surge in oil prices has dampened those hopes.

Analysts said credit markets were also shaken Friday by word that Democratic congressional leaders would probably try to delay federal budget cuts beyond the Oct. 1 Gramm-Rudman deadline while talks on the deficit continue.

Volume was light Friday as many traders took the day off for Rosh Hashanah, the Jewish New Year.

The federal funds rate, the interest banks charge one another for overnight loans, was quoted at 8.125%, up from 8.063% late Thursday.

CURRENCY

Dollar Gives British Pound a Drubbing

The dollar rose against most currencies, moving up sharply against the British pound on speculation that Britain’s entry into Europe’s Exchange Rate Mechanism will take place later rather than sooner.

It fell against the Japanese yen.

“Most of the activity in the market today centered on sterling,” said Robert Hatcher at Barclays Bank.

Dealers said activity was subdued ahead of a meeting of finance officials from the Group of Seven industrialized nations Saturday and next week’s annual meeting of the International Monetary Fund and World Bank.

The pound fell against the dollar to $1.8435 from $1.8845 after steadying briefly on Chancellor of the Exchequer John Major’s statement that Britain will enter the Exchange Rate Mechanism at the “earliest sensible date.” Britain is waiting for the right circumstances, he said.

The U.S. currency bought 1.5785 German marks, up from 1.5770 late Thursday, but it eased to 136.65 Japanese yen from 137.65.

Lisa Finstrom of Shearson Lehman Bros. said Major’s statement was important because it underscored the fact that the question is one of timing.

But she said speculators who were betting on an entry this autumn overlooked the fact that British inflation, at more than 10%, is too high to permit near-term entry into the Exchange Rate Mechanism.

That entry would permit the pound to fluctuate in a certain band relative to other European currencies.

COMMODITIES

Prices of Gold Futures Level Off

Gold futures prices remained relatively stable, despite soaring energy prices, amid skepticism that hostilities would escalate in the Middle East over the weekend.

On other commodities markets, livestock futures rose, pork bellies fell, soybean futures fell, and corn and wheat futures posted slight gains.

Gold futures settled 20 cents to 50 cents higher on New York’s Commodity Exchange, with the contract for delivery in September at $389.40 an ounce. Silver settled 1 cent to 1.2 cents higher, with September at $4.79 an ounce.

Gold posted early gains of nearly $5 an ounce in sympathy with surging energy prices, but traders later began selling off the futures for profit, analysts said.

Market Roundup, D6