STOCKS : Dow Tumbles 33.17 as Consumer Prices, Fears of Ground War Escalate

Stocks suffered their sharpest losses in six weeks Wednesday as worries about a ground war in the Gulf and troubling economic news gave investors excuses to take profits.

The Dow Jones industrial average slid 33.17 points to 2,899.01, a drop of 1.1%. It was the biggest loss since the 30-share index fell 39.11 on Jan. 9, eight days before the start of the war.

Selling also was evident in the broader market, where declining issues outnumbered advances by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 531 up, 1,098 down and 431 unchanged.

Big Board volume came to 185.68 million shares, against Tuesday’s 189.90 million.

“Investors were looking for an excuse to sell,” said A. C. Moore, analyst at Argus Investment Management.

The market has raced sharply higher since the war started Jan. 17, when the Dow was at 2,508.

With U.S.-led forces poised to launch a ground invasion in the effort to drive Iraq from Kuwait and the world awaiting Iraq’s response to the latest Soviet peace proposal, investors grew jittery.

Disappointing economic news at home also fed the selloff. The government reported that consumer prices rose 0.4% in January, or 0.8% excluding volatile food and energy prices. The rises far exceeded economists’ predictions.

At the same time, the government said housing starts in January dropped by 12.8%, compared to an expected 2% fall.

So a stubbornly high inflation rate is continuing, even though the economy appears to be weakening. That raises the threat of “stagflation,” a repeat of the late 1970s.

The market found little comfort in Federal Reserve Chairman Alan Greenspan’s comments that he expects the economy to rebound later this year and inflation to stay moderate. The central bank chief made the remarks in his semiannual report to the Senate Banking Committee.

Still, the selloff did not appear to have any urgency, as shown by the moderate trading volume. And smaller stocks, leaders in the recent rally, gave up less ground than the Dow. The NASDAQ composite index of smaller stocks eased 4.30 points to 446.02, a 1% drop.

Among the market highlights:

* The Dow was hurt by Boeing, off 1 3/8 to 48; GM, off 1 5/8 to 36; IBM, off 1 5/8 to 137 7/8, and American Express, which fell 1 1/8 to 24 3/8.

* Industrial stocks as a group were broadly lower on economic concerns. Most of the stocks have jumped in recent weeks on expectations of a short recession. Dow Chemical fell 2 1/2 to 52 5/8, Nucor lost 1 5/8 to 72 1/4, Phelps Dodge dropped 1 3/4 to 63 1/4 and Emerson Electric gave up 1 5/8 to 42 1/2. However, Square D jumped 20 1/4 to 72 1/4 after Groupe Schneider of France offered $1.8 billion, or $78 a share, for the maker of electrical parts.

* Drug stocks were hit heavy by profit takers. Pfizer lost 2 1/2 to 101 1/2, Lilly fell 1 3/4 to 79 1/2 and Bristol Myers dropped 1 1/4 to 74 5/8. But Upjohn rose 3 1/8 to 44 1/2 on renewed takeover rumors.

Meanwhile, medical instrument stocks continued to rally, including Sunrise Medical, up 3/4 to 23 1/4, and Mentor Corp., up 1/2 to 22 3/4.

* Cytogen rose 2 3/8 to 14 7/8. Morgan Stanley & Co. repeated its buy rating on the biotech company. Also, Amgen jumped 2 5/8 to 88 3/4 after brokerage Alex. Brown reiterated a buy rating on the stock.

* Technology stocks were mostly lower. Cadence Design fell 3/4 to 29 3/4, Conner Peripherals dropped 2 to 24 3/4 and Tekelec fell 1 1/4 to 17 3/4. Disk-drive maker Micropolis lost 5/8 to 11 1/8, despite an upgrade to its credit rating by Standard & Poor’s. Elsewhere, System Software plunged 7 1/4 to 22 on disappointing first-quarter earnings results.

Tech gainers included AST Research, which rose 1 1/4 to 45 3/4 after saying it plans to sell 2 million new shares to the public.

* Among other Southland firms, Caesars World rose 1/8 to 17 after reporting income of 17 cents a share in the quarter, versus 6 cents a year earlier. But filter-maker Farr Co. tumbled 1 5/8 to 11 1/8 after reporting quarterly earnings of 24 cents, down 17% from a year ago.

In overseas trading, Tokyo stocks seesawed, rising on rumors that Iraq was about to announce its withdrawal from Kuwait and then dropping when the talk proved false. The key 225-share Nikkei index ended the day 31.81 points higher at 26,198.79.

Share prices fell on London’s Stock Exchange in what dealers said could be the start of a welcome period of consolidation. The Financial Times 100-share index closed 15.6 points lower at 2,296.8.

German shares fell 1.3% due to profit taking after three consecutive days of gains. The 30-share DAX index closed 19.81 points lower at 1,567.32.

Credit

Bond prices moved erratically lower as pessimism over higher-than-expected inflation was counteracted by signs that the Federal Reserve had not shut the door on further interest rate easings.

The Treasury’s bellwether 30-year bond fell 15/32 point, or $4.69 per $1,000 in face amount. Its yield rose to 8.03% from 7.99% Tuesday.

Many traders said they entered the session with the view that the Fed might back down from its interest rate-easing policy. But analysts said Fed Chairman Greenspan helped soothe those concerns in his remarks before Congress.

The federal funds rate, the interest on overnight loans between banks, fell to 2% from late Tuesday’s 6%. Analysts said the drop was because of technical factors related to the end of the two-week reporting period for banks to meet reserve requirements.

Currency

The dollar was mixed after Greenspan’s predictions of an improving economy and hint of further interest rate reductions if the economy sours.

The dollar rallied on Greenspan’s repeated predictions that the current recession will be short and mild. But some traders dumped dollars when Greenspan indicated that the central bank would cut interest rates further if the economy worsened, analysts said.

Curtis Perkins, vice president of Chemical New York Capital Markets Group, said the dollar was helped by expectations of a ground war in Kuwait, which could caused a temporary worldwide flight to safety in financial markets.

In New York, the dollar finished at 1.496 marks, up from 1.493 at Tuesday’s close. The dollar briefly rose above 1.500 marks, but failed to hold above that level.

The dollar finished slightly lower against the Japanese yen at 131.43, down from 131.58 Tuesday. The British pound rose to $1.950 from Tuesday’s rate of $1.949.

Other late dollar rates in New York, compared to late Tuesday’s rates, included: 1.2785 Swiss francs, unchanged; 5.0865 French francs, up from 5.0825; and 1.1527 Canadian dollars, down from 1.1528.

Commodities

Prices of oil futures surged on the New York Mercantile Exchange, driven higher by cold weather in Europe and perceptions that the U.S.-led allies are poised to begin a ground war to drive Iraqi forces from Kuwait.

Light sweet crude oil futures settled 41 to 76 cents higher in New York, with the contract for delivery in March expiring at $20.48 a barrel. The April contract, which now moves into the near-term delivery slot, closed at $19.55 a barrel.

The rally was led by heating oil, which rose sharply in line with home heating oil prices in London amid forecasts for unusually cold temperatures in Europe.

Elsewhere, gold futures rose and silver retreated on New York’s Commodity Exchange in a quiet performance, compared to Tuesday’s sharp drop in silver prices.

Gold was unchanged to 40 cents higher, with February at $364.70 an ounce; silver was 1.2 to 1.6 cents lower, with February at $3.67.

Market Roundup, D8