COLUMN ONE : It’s a Bull Market for Rumors : Kamikaze camels? Clones of Saddam Hussein? Truth or fiction, stories like those are rattling traders on five continents. Some see a profit in fabrication.

Oil prices began ticking up in Singapore last month on a market rumor that Iraqi President Saddam Hussein was going to spend a day celebrating his birthday, and that American bombers were poised to rain devastation on Baghdad when he did.

Some traders expected the rumor to give the market quite a kick, but prices faded rapidly when someone discovered Hussein’s birthday had passed--six months earlier.

The markets were also ruffled recently by talk that Hussein’s astrologer had convinced him that Oct. 18 and 20 were auspicious dates to start a war. Then there was a rumor Hussein had been killed in a freak gardening accident.

“Don’t ask me how,” said Arnold G. Stifel, a trader-analyst with Cargill Investors. “Maybe he was beaned by a potted geranium.”

Welcome to the Great Rumor Market of 1990, where reports without the merest wisp of corroboration can set markets on five continents heaving and churning. Since the Aug. 2 invasion of Kuwait raised fears of war and economic catastrophe, the global markets for oil, bonds, stocks, and other investments have been lashed day after day by reports that often lack not only substantiation but logic.

Some are born of misunderstanding, but others are clearly fabricated to give traders an opportunity to turn a quick profit as prices briefly spurt or dive.

Perhaps the zaniest report came Oct. 22, when a Kuwaiti paper now published in Saudia Arabia reported that the prophet Mohammed, swathed in white robes, had appeared to Hussein in a dream and counseled him to abandon Kuwait. The rumor contributed to the record sell-off that dropped the price of oil more than $5 per barrel on the New York Mercantile Exchange.

Others have been nearly as exotic, including:

--A report that Iraqi plastic surgeons had remade five men to look just like Hussein in an effort to guarantee the regime wouldn’t collapse if something happened to the master mold.

--A rumor that Hussein had fled in women’s clothing to France, where he was said to be planning to open a pastry shop.

--A report that Iraq planned to spearhead an attack on Saudi Arabia with a herd of “kamikaze camels” loaded with explosives and chemical bombs.

The rumors demonstrate market psychology at its most extreme. Indeed, though there’s no objective way to measure rumors’ influence, some veteran analysts believe war-related rumors may today hold sway over prices more than at any time in at least half a century.

“Looking at the record, you just don’t see moves from war rumors like what we’ve seen recently,” says Robert Stovall, president of Stovall/Twenty First Advisers, a New York money management firm. “There’s no precedent.”

There are good reasons for the rumors’ exaggerated influence. The gulf threat simultaneously arouses anxieties of all the worst economic calamities--higher oil prices, inflation, and recession. “This pushes all of our hot-buttons at once,” says Gary Ciminero, economist with Fleet/Norstar Financial Group in Providence, R.I.

Compounding the markets’ worries are Hussein’s unpredictability, and the lack of reliable information from Iraq, both of which heighten the uncertainty that is always investors’ worst fear.

War rumors have rattled world markets regularly during this century, including during the oil crises of 1973 and 1979, at the time of the Paris negotiations to end the Vietnam War, and as Hitler threatened Europe in 1939.

The markets may be extra-sensitive to rumors today because they have grown ever more closely linked electronically.

And how do such rumors arise?

In part, because the world markets are one enormous game of “telephone” in which thousands of traders at dozens of trading pits and desks are linked by an endless spool of telephone lines. As they pass along information--in many respects, the currency of their business--traders unintentionally distort it, often in a way that reflects their worst fears or most passionate hopes.

Last Sept. 10, the Reuters news service reported that Iraq was redeploying 100,000 troops from its border with Iran to the borders of Jordan, Syria and Turkey, recalled Ann-Louise Hittle, senior oil analyst at the Shearson Lehman Bros. brokerage. As it filtered through the market, the report was converted into a rumor that Iraq had sent troops into Jordan.

“It was no more than a misunderstanding,” Hittle said.

Nonetheless, oil prices, which had been off as much as $1.69 a barrel in early trading, jumped to close up $1.26 a barrel in New York trading.

Such rumors tend to be more persuasive to traders if they bear out the trader’s hunch on which way the markets are headed.

On Oct. 12 in London, for example, an Iraqi opposition group called the Democratic Party of Kurdistan put out word that Hussein had been polling key members of the ruling Arab Baath Socialist Party on whether he should withdraw from Kuwait. The sources of this information weren’t precisely identified, and many traders thought that since Hussein had executed dissenters during the war with Iran, it was unlikely that he was now adopting a consensus-building approach.

Nonetheless, analysts said the rumor was a key factor in lifting the Dow Jones industrial average 33 points in New York that day, raising long-term bond prices and depressing oil prices.

But if many rumors are begun inadvertently, others are clearly fabricated, or at least exaggerated by traders who would like to see the market headed in a certain direction.

It’s not hard to feed a rumor into the ceaseless flow of market information, traders say. The simplest way may be by simply posing a question.

Last Aug. 9, a caller asked Sandra Weinberger, a broker on the oil desk at Dean Witter Reynolds Inc. in New York, “Have you heard about anything being shot down?”

“You always assume there’s something behind it,” Weinberger said at the time.

Traders suspect that some rumor-mongers use more sophisticated strategies.

On several occasions since the Kuwaiti invasion, there have been rumors from the Tokyo markets that attributed some gulf development to the British Broadcast Corp. World Service, the BBC’s worldwide radio service. One such false rumor, which helped drive the Tokyo stock market Oct. 12, had it that Hussein had agreed to withdraw from Kuwait if the threat of U.S. bombing were removed.

The BBC is a good source of attribution because of its reputation for reliability. Also, since London offices are still closed during early Tokyo trading, it would be nearly impossible to check out a rumor and quickly halt a price spike.

“The BBC has been cited on many occasions,” said John Bamber, the BBC’s newsroom editor in London. And the idea of traders floating such bogus reports in Asian markets to stymie quick detection “does sound likely,” he acknowledged.

Another reason for the war rumors’ influence is that the financial news services that sometimes help circulate them find it difficult to prove or disprove them.

These services, including Reuters, Telerate, Knight-Ridder and Platt’s, provide prices and market news direct to screens that dot the world’s trading desks. The services say they resist spreading unverified reports, but feel they must pass them on once the rumors have begun to move prices.

But the news services often don’t have good sources near the gulf, and U.S. officials often don’t respond to queries quickly enough to do any good.

“The State Department will tell you they know nothing about it, and there’s no hot line into Iraq,” said Joseph Link, editor-in-chief of Platt’s Oilgram, which provides an electronic news service. “So there’s nothing to keep the rumor from just rolling on.”

Officially, traders who spread false rumors can be fined or even thrown out of the business. But as a practical matter, it’s almost impossible to enforce the rules against the practice.

Officials who try to trace down rumors often are given the plausible explanation that traders simply can’t recall how they heard a rumor, since they talk to dozens of people each day.

The New York Mercantile Exchange, home of the world’s premier oil futures market, has never punished a soul for spreading false rumors, for example.

Last Sept. 10 the exchange said it would conduct a “review” of an unexplained price jump that lifted crude prices $1.60 a barrel in the last six minutes of trading. Some traders say there was a rumor at the time that Iraqi troops had crossed the Saudi border.

But the exchange has yet to report any conclusions from the effort.

Still, if the markets are awash with dubious information, many traders say they must be careful not to hastily dismiss even reports that seem highly unlikely.

Many recall that the Iraqi crisis began with an oil price increase on rumors that Hussein was about to invade Kuwait. The Pentagon confirmed troop movements near the Kuwaiti border, but most traders thought speculation that Hussein would actually seize Kuwait was outlandish.

“Maybe the market knew something,” said Peter Beutel, the top oil analyst with Pegasus Econometrics Group in Hoboken, N.J. “So it’s awfully hard to separate the wheat from the chaff.”

Some traders take seriously rumors that they are embarrassed even to discuss.

One New York bond trader said in an interview that he had heard the rumor of the five duplicate Husseins. The trader insisted in the most forceful terms that he did not want his name attached to the rumor in this article, lest readers consider him a “buffoon.”

Yet he acknowledged that he gave the report at least a sliver of credence. “You just can’t tell with those Iraqis,” he said.

Sometimes, it doesn’t matter if a rumor is false--traders will follow it simply because they fear the markets might turn disastrously against them.

And these days, markets move fast. The rumor that ignited prices at the close of Nymex oil trading Sept. 10, for example, needed only six minutes to add $67,000 to the price of a 100-contract order, which is not unusually large for the market.

“You hear these things and even if they’re weird, you may feel you’ve got to react,” said Tom Bentz, director of trading at United Energy Inc. in New York. “You picture them foreclosing on your house, taking your car.”

Rumors move the markets, too, because some traders view them as short-term trading opportunities. They’ll buy or sell as soon as they hear talk, expecting they’ll be able to liquidate their positions at a profit only minutes later.

In the stock market, there has recently been more use of such tactics by the brokerage-firm traders who are buying and selling for the firm’s own account, says Ron Doran, head of institutional trading for C.L. King & Associates in Albany. Such trading for the house has increased in the last three years as some other Wall Street activities have gotten less profitable.

“If you buy 50,000 shares and a rumor moves the price a point and a half ($1.50), you’ve had a good day, no matter how bogus the rumor was,” says Doran. “Rumors can be good business.”