STOCKS : Dow Jones Falls 24.15 Over Concern on Interest Rates

Stock prices fell Tuesday in thin trading, taking their cue from a selloff in bonds and on concern over the direction of interest rates.

The Dow Jones average of 30 industrials fluctuated in a narrow range throughout the day before falling briskly to close at 2,917.49, down 24.15. Declining issues narrowly outnumbered advances in nationwide trading of New York Stock Exchange-listed stocks, with 836 down, 739 up and 513 unchanged.

The market focused on the first leg of the Treasury’s record quarterly sale of $37 billion of securities--which met tepid demand and pushed interest rates up. The notes are sold to help finance the nation’s huge budget deficit.

Higher interest rates generally hurt stocks because they can raise borrowing costs for companies and slow expansion and profit growth.

“There’s a slightly negative feeling that this (auction) could have gone better,” said Ned Collins of Daiwa Securities. “This was the easiest day--the upcoming ones will be more difficult.”

More U.S. paper will be sold today and Thursday.

The concerns that brought the Dow down were not widespread, and volume was light with 153.29 million shares changing hands, up from Monday’s 128.36 million.

“This is one of the dullest days I can remember in recent months,” said Robert Walberg, market analyst at MMS International.

Ever since the Federal Reserve lowered the discount rate last week to stimulate the economy and commercial banks cut their prime rates, investors have fretted that they will not see further action.

“There a perception the Fed has used the last arrow in its quiver,” Michael Metz of Oppenheimer & Co. said.

Traders were also wary about Friday’s produce price report, which may show a slight pickup of inflation. Economists predict that prices at the wholesale level rose 0.1% in April, following March’s 0.3% decline.

A faster-than-expected rate of inflation could put a firm brake on lower interest rates, depressing blue chips further.

Among the markets highlights:

* Warner-Lambert rose 2 1/4 to 75 on the prospect that the U.S. Food and Drug Administration will speed the approval process for Warner-Lambert Alzheimer’s drug Cognex.

* American Waste fell 1 1/4 to 7 3/4. Paine Webber cut its 1991 and 1992 earnings estimates on the company.

* Occidental Petroleum rose 3/8 to 19. The company said First Boston repeated a buy rating on its stock after Occidental announced plans Monday for its first big asset sale as part of its restructuring program.

* IBM tumbled 1 1/2 to 101 7/8 on news that IBM was slashing prices on many of its advanced workstation models.

Overseas markets were mixed. In London, share prices rose sharply, buoyed by renewed strength in the futures market and a firmer trend on Wall Street. The Financial Times 100-share average added 17.8 points to end at 2,540.5. German shares closed mixed with the 30-share DAX average gained 3.47 points to 1,627.46. Tokyo stocks returned after the so-called Golden Week holidays and closed lower. The 225-share Nikkei average dropped 135.72 points to 26,342.14.

Credit

Bond prices fell moderately in the credit markets as investors reacted to the weaker-than-expected demand for a new batch of three-year notes auctioned by the government.

Expectations that the weaker demand could spill over to auctions today for 10-year notes and Thursday for 30-year bonds helped push prices down.

The Treasury’s bellwether 30-year bond fell 9/32 point, or $2.81 per $1,000 in face amount, late Tuesday. Its yield was 8.24%, up from 8.21% late Monday.

Many in the market had expected domestic banks, faced with weak loan demand, to put their money in the three-year notes while waiting for demand to pick up, said Douglas McAllister, government bond strategist at Prudential Securities Inc.

The federal funds rate, the interest on overnight loans between banks, held at 5.688%.

Currency

The dollar closed lower, nudged downward by lingering concerns about President Bush’s health and a possible decline in interest rates.

Although Bush’s heart rhythm was normal for a second day, traders were still uneasy after the President’s weekend hospitalization, said Earl I. Johnson, a vice president with Harris Trust & Co. in Chicago.

The dollar was also depressed by talk of interest rate hikes in Germany that helped boost the German mark, analysts said.

The mark, like all currencies, is supported by higher rates, which make a country’s investments more attractive. An increase in German rates would therefore be a positive sign for the mark and a negative for the dollar and other currencies backed by lower rates.

The dollar fell to 1.7175 marks in New York from 1.7325 marks late Monday. The dollar fell to 137.80 Japanese yen down from late Monday’s 138.185.

The U.S. currency was further hurt by the belief that U.S. rates would continue to fall because of the recession. Although the unemployment rate declined last month to 6.6% from 6.8% in March, the economy remains weak and traders fear the Federal Reserve will push U.S. interest rates lower, Johnson said.

Other late dollar rates in New York, compared to Monday’s prices, included 1.4530 Swiss francs, down from 1.4675; 5.8155 French francs, down from 5.8625; 1,2700.50 Italian lire, down from 1,282.25, and 1.15105 Canadian dollars, up from 1.15055.

Commodities

Falling cash prices and the prospect of more beef coming to market sent cattle futures prices skidding to three-month lows at the Chicago Mercantile Exchange.

On other markets, corn and soybeans were losers while wheat moved a little higher; precious metals were higher, and energy futures were mixed.

The decline in cattle futures was triggered by choice fed steers in the Southern Plains breaking below the psychologically important level of $80 per hundredweight, said Charles Levitt, senior livestock analyst with Shearson Lehman Brothers Inc.

Live hog futures also declined but showed substantial resilience to the stiff losses in cattle and pork bellies.

Live cattle futures settled 0.20 to 0.98 cent lower with the contract for delivery in June at 75.07 cents a pound; feeder cattle were 0.65 cent to 1.45 cents lower with May at 89.12 cents a pound; live hogs were 0.10 to .32 cent lower with June at 58.65 cents a pound, and frozen pork bellies were 0.03 cent to 1.52 cents lower with May at 63.55 cents a pound.

Gold settled to $1.30 higher with the May contract at $356.50 an ounce on the Commodity Exchange in New York.

Energy futures were mixed at the New York Mercantile Exchange.

Light, sweet crude oil was 4 to 7 cents lower with July at $21.63 a barrel.