STOCKS : Employment Data Blamed as Dow Falls 18.12

Stocks extended their losses to a fourth day Friday, as a stronger-than-expected May employment report fueled inflation worries and triggered a rise in long-term interest rates.

The Dow Jones industrial average slid 18.12 to 2,976.74, ending a losing week on Wall Street. The Dow index of 30 leading industrial companies tumbled 50.76 from last Friday, when it ended at a record high.

It extended its gains Monday, with an all-time closing high of 3,035.33, before stumbling as investors took profits.

“The market moved a bit too high, too fast,” said Gene Seagle, director of technical research at Gruntal & Co.

Big Board volume was a moderate 168.05 million shares, down from 168.26 million Thursday.

In the broader market, declining issues outnumbered advances by about 5 to 2 in nationwide trading of New York Stock Exchange-listed stocks, with 465 up, 1,121 down and 480 unchanged. The average share on the New York Stock Exchange was down 35 cents.

Wall Street took its cue from the bond market, where prices skidded and yields rose after the May employment data. Some analysts suggested that rising interest rates could choke off an economic rebound.

The Labor Department reported that the unemployment rate--considered a lagging indicator of economic activity--rose to 6.9% in May from 6.6% in April.

But more important, according to economists, the economy generated 59,000 jobs outside the farm sector. It was the first rise in payroll employment since the recession began in July, suggesting that the economy is on the mend.

Stock and bond investors fretted that a pickup in the economy would rekindle inflation and prompt the Federal Reserve to keep interest rates steady.

Seagle said the market’s psychology was broken a bit when pharmaceutical stocks--which had been popular--turned weak early this week.

Until Tuesday, the Dow had risen six straight sessions.

“In six days, the Dow moved up almost 200 points. It’s healthy and normal for it to have a pullback here,” he said.

“We’re seeing profit taking and consolidation as the market gets set to resume its advance,” Seagle added, saying a retreat to between 2,900 and 2,950 on the Dow would not be alarming.

Among the market highlights:

* Time Warner fell 4 7/8 to 94 5/8 after losing 11 1/4 Thursday. Traders cited lingering concerns that the media and entertainment giant’s stock offering, announced this week, would dilute per-share earnings.

* Shares of First Interstate Bancorp and BankAmerica Corp. fell after two large blocks of their stock were sold, analysts and traders said. First Interstate shed 3 to 38 3/8, and BankAmerica slipped 3/8 to 39.

* An analyst at Prudential Securities downgraded his rating on Kellogg Co. and the overall food group of stocks to “hold” from “buy,” traders said. Kellogg closed at 96, off 4.

* Best Buy Co. closed up 7/8 at 19 1/4. The stock reached a new 52-week high of 19 1/2 during the session after the electronics consumer retailer said Thursday that its May sales surged 42%.

* Shares of bakery cafe chain Au Bon Pain Co. jumped more than 30% to 12 1/4 from the offered price of 9 on its first day as a publicly traded company.

* American Brands eased 1/2 to 39 7/8. Paine Webber said it downgraded its 1991 earnings estimate and lowered its rating for the tobacco company to “neutral” from “buy.”

Overseas, stocks finished the week higher in Tokyo and Frankfurt but fell in London.

Tokyo’s key 225-share Nikkei average gained 50.99 to 25,035.11, down 754.51 for the week.

In Frankfurt, the 30-share DAX average finished 5.47 points firmer at 1,709.64 on Friday, virtually unchanged from last Friday.

Shares tumbled in late afternoon trading in London. The Financial Times 100-share average fell 19 to 2,506.3 but still ended 35 points up on the week.

Credit

Treasury bond prices fell after the release of the May employment report.

The Treasury’s bellwether 30-year bond lost 17/32 point, or $5.31 per $1,000 in face amount. Its yield rose to 8.47% from 8.42% late Thursday.

The market had been expecting non-farm jobs to decline, and traders surprised by the news began to sell off government bonds, said Jay Goldinger, chief market strategist for Beverly Hills-based Capital Insight Inc.

Signs of economic growth can lead to higher interest rates. Higher rates depress the value of fixed-return securities such as bonds.

In the secondary market for Treasury bonds, short-term maturities were down 7/32 point to 5/16 point, intermediate maturities were off 5/16 point to 17/32 point, and long-term issues were down as much as 21/32 point, the Telerate Inc. financial data service reported.

The movement of a point equals a change of $10 in a $1,000 bond.

The federal funds rate, the interest on overnight loans between banks, was quoted at 5.675%, unchanged from late Thursday.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds closed at 91-13/16, down 13/32 point. The average yield to maturity rose to 7.26% from 7.22% late Thursday.

Currency

The dollar closed higher after the report on job growth increased prospects for firm U.S. interest rates.

“Across the board the dollar has benefited from the jobs data today,” said John Lyman, a dealer for the Bank of Tokyo.

In New York, the dollar closed at 1.7705 German marks, up from 1.7535 marks at Thursday’s close. It finished at 140.45 Japanese yen, compared to 139.25 yen Thursday.

The British pound fell against the dollar, tumbling to $1.6710 in New York from $1.6870 late Thursday.

Other late rates for the dollar in New York, compared to late Thursday’s prices, included: 1.5190 Swiss francs, up from 1.5040; 5.9985 French francs, up from 5.9400; 1,312.75 Italian lire, up from 1,299.75, and 1.14775 Canadian dollars, up from 1.14645.

Commodities

Prices of silver futures rose, extending this week’s dramatic rally. But the market settled well below the day’s highs as some questioned whether the gains would hold.

On other commodity markets, gold futures also rose; oil was lower; grains and soybeans rose, and livestock and meat futures rose.

Silver futures settled 4 to 5.3 cents higher on New York’s Commodity Exchange, with the contract for delivery in July up 4 cents at $4.47 an ounce.

Gold futures ended $1.20 to $1.50 higher, with June at $366.30 an ounce.

Silver’s advance brought the July contract’s gain for the week to 35.3 cents, an 8.6% increase over last Friday’s $4.117.

The rally included a 24.5-cent surge Thursday as speculators flooded the market with buy orders after the Silver Institute, a group that mainly represents silver producers, predicted that industrial consumption would outstrip new silver production by 32 million ounces in 1991.

July silver opened at $4.48 an ounce in New York, five cents above Thursday’s close, and climbed as high as $4.64 before selling by Middle Eastern interests and possibly producers capped the advance.

“I would guess some producers came into the market at these nice levels,” said Andy Maag, a silver trader with Swiss Bank Corp. in New York.

Maag said that silver’s sudden advance was surprising but that he was confident that the market would avoid a collapse back to the $4 level, as happened after other recent sharp advances.

But other analysts said the market was supported more by speculation than by supply-and-demand fundamentals.

Walter Frankland, executive vice president of the Silver Users Assn., said traders were ignoring 914 million ounces of surplus silver that have accumulated since 1978. “There is no shortage of the metal,” Frankland said.

Randy Donney, head of research at the Pegasus Econometric Group in Hoboken, N.J., said the silver market would soon face “a day of reckoning.”

July wheat deliveries jumped 5 cents a bushel on the Chicago Board of Trade as worries about crop quality prompted a surge in demand for near-term supplies. Other grain and soybean futures closed mostly higher.

Wheat futures settled 1 cent lower to 5 cents higher, with July at $2.96 a bushel; corn was 0.75 cent to 1.24 cents higher, with July at $2.4574 a bushel; oats were 0.50 cent to 1.25 cents higher, with July at $1.2325 a bushel, and soybeans were unchanged to 3 cents higher, with July at $5.835 a bushel.