Dow Falls 31.31 on Worry Over Lower Earnings

Blue chip stocks took their biggest slide in five weeks Wednesday, hammered by worries over corporate earnings and a surprise bankruptcy threat by giant Columbia Gas.

The Dow Jones industrial average tumbled 31.31 points, or 1.1%, to close at 2,955.50. The Dow was down more than 40 points during the session, which followed steep drops in key overseas markets.

Declining stocks outnumbered gainers 1,156 to 414 on the New York Stock Exchange. And though trading volume remained moderate at 159.73 million shares (including the NYSE’s after-hours session), the continuing spate of bad news suggested stocks could face trouble again today.

Wednesday’s major debacle was a 40% plunge in the share price of East Coast natural gas utility Columbia Gas, which tumbled 13 3/4 to 20 3/4 after the company said it could be forced into bankruptcy by onerous gas-supply contracts. (Story, D3.)

In the broad market, however, investors seemed more troubled by a string of announcements regarding corporate earnings in the current quarter, ending June 30:

* El Segundo-based semiconductor firm International Rectifier plummeted 5 5/8 to 16 1/2 on the NYSE, after the company said slowing demand in some of its businesses will probably cut second-quarter profits.

The plunge in International Rectifier shares came after the company said it was guiding analysts to the low end of profit projections for the current quarter. Estimates had ranged from 32 cents to 41 cents a share, versus 17 cents a year ago. The company said its major problem has been a slowdown in orders for electronic parts it supplies to computer disk-drive makers. But company officials said the problems are “short-term” and that long-term growth still appears on track.

* Consumer products leader Procter & Gamble slumped 2 3/8 to 81 after a Merrill Lynch analyst cut earnings estimates, citing price competition in key products and the potentially negative effect of the strong dollar.

* After the market close, Waste Management--the nation’s bellwether environmental company--warned that second-quarter earnings will be “slightly” below analysts’ estimates. The company blamed, in part, the slow economy. The stock slipped 5/8 to 39 3/8, but could drop sharply today.

“The overall feeling is that earnings are not going to come through as anticipated in the second quarter,” said Paul Hennessey, head of trading at Boston Co.

Earlier this month, many analysts expected that investors wouldn’t pay much attention to second-quarter earnings because the market was said to be looking ahead to the economy’s recovery in the summer and fall. Profits should strengthen as the economy gains steam.

But in recent days, disappointing profit projections from a variety of companies have blindsided many investors. Even though earnings weren’t expected to be healthy in the current quarter, Wall Street apparently still expected better than what some firms will show.

Some analysts now say the warnings of bad earnings could spook investors, causing widespread profit taking before the quarter ends.

Institutional investors, in particular, are prone to a strategy known as “window-dressing,” dumping losing stocks at the end of each quarter so that clients don’t see the names on quarterly performance reports.

Among the market highlights:

* The collapse in Columbia Gas shares caused a selloff in other gas pipeline and distributing stocks. Panhandle Eastern fell 1 1/8 to 11 1/4, Consolidated Natural Gas lost 1 3/4 to 39 1/2, Transco dropped 1 to 32 3/8, and Enron fell 1 1/8 to 59 1/8.

Columbia Gas, a component of the Dow utility index, dragged the index down nearly 5%, off 9.87 points to 197.25.

* Energy stocks in general weakened further. Arco dropped 2 1/4 to 115 1/4, Halliburton tumbled 1 3/8 to 39 1/8, Unocal lost 5/8 to 23 1/8 and Sun slipped 7/8 to 29 5/8.

* Technology stocks had another bad day. Microsoft lost 8 1/8 to 103 3/8 after publication of an internal memo from its chief that warned of tough competition ahead in the software field. Competitor Borland slumped 4 1/4 to 44 1/4 after a court denied the company a key request for documents in a patent fight with Lotus Development. Lotus eased 1/4 to 32 3/4.

Elsewhere, AST Research lost 5/8 to 20 3/8, Intel gave up 1 to 47 1/2 and Aldus fell 2 1/2 to 41.

* Traders took profits in some industrial stocks that have run up recently. Caterpillar dropped 1 3/8 to 49 1/2, GM lost 1/2 to 43, Reynolds Metals fell 7/8 to 59 1/8 and International Paper fell 1 3/8 to 72 1/4.

In overseas trading, a sharp drop in Tokyo stocks Wednesday helped prime Wall Street’s decline. The Nikkei average tumbled 688.72 points, or 2.8%, to 23,996.75--the lowest close since Feb. 6. Analysts said hopes were fading for lower interest rates in Japan after Tuesday’s GNP figures showed strong growth continuing.

In early trading today, the Nikkei rebounded 94 points.

Stocks also closed lower in Europe on Wednesday. In Frankfurt, shares drifted to close at a three-week low. The DAX average lost 12.39 points to finish at 1,683.03.

In London, the Financial Times 100-share index slumped 31.3 points to 2,484.7.

In Mexico City, the Bolsa index dropped 20.14 points to 1,070.47. But Brazilian stocks continued to soar, with the Bovespa index of the Sao Paulo exchange leaping 7.6% to a record 12,899.

Credit

Bond prices finished slightly higher in uneventful trading.

The Treasury’s 30-year bond gained 1/8 point, or $1.25 per $1,000 in face amount. Its yield eased to 8.50% from 8.51% Tuesday.

The Federal Reserve, in its latest survey, said the economy has begun showing modest signs of recovery, although weaknesses remain in some regions and in some industries.

Also, Michael Boskin, the White House’s chief economic adviser, told Congress that the economy will resume growing during the second half of the year at an annual rate of up to 3%.

In recent days, bond traders have reacted badly to signs of a strengthening economy, fearing new growth will mean higher interest rates ahead. But Wednesday’s news was largely ignored.

The federal funds rate, the interest on overnight loans between banks, was quoted at 5.688%, unchanged from late Tuesday.

Currency

The dollar ended broadly lower, pushed down by technical factors, economic concerns and fears that world leaders may try to stem the currency’s recent rally.

Dollar sales continued on speculation that this Sunday’s meeting in London of the Group of Seven major industrial nations may result in a concerted effort to keep the dollar down.

In the past, the G-7 has used central bank interventions and interest rates to try to influence the dollar’s movement on world currency markets.

Some dealers said the G-7 officials were unlikely to reach an accord, but investors weren’t prepared to run that risk.

The dollar ended at 1.789 German marks, down from 1.816 marks Tuesday. The dollar also fell to 140.05 Japanese yen, down from Tuesday’s finish of 141.08.

Commodities

Grains and soybean futures prices got a lift from the National Weather Service, as forecasts confirmed above-normal temperatures that could harm the crops.

Wheat futures prices on the Chicago Board of Trade settled 2 cents lower to 1.25 cents higher, with the contract for delivery in July at $2.892 a bushel; corn settled 1 cent to 5 cents higher, with July at $2.4125 a bushel.

Elsewhere, energy futures fell across the board, in a selloff that began on news that the nation’s supply of gasoline was growing. Light sweet crude oil for delivery in July settled at $19.99 per barrel, down 14 cents, at the New York Mercantile Exchange.

Gold settled 20 to 30 cents higher, with June at $367.70 an ounce; silver settled 1.4 to 1.4 cents lower, with June at $4.44 an ounce on New York’s Commodity Exchange.

Market Roundup, D6