STOCKS : Dow Drops 17 on Fears of a Weak Recovery

Fresh worries over the strength of the economic recovery pushed stocks lower for the third straight session Wednesday.

The government reported that orders for durable goods fell 1.6% last month, surprising economists who had predicted a small rise. It gave weight to some experts’ view that the rebound from recession will be modest at best.

The report revived Wall Street’s anxiety about the economy, driving stocks lower. Corporate earnings reports also remained a focus of attention, keeping many investors on the sidelines.

The Dow Jones industrial average dropped 17.00 points to 2,966.23 on top of Tuesday’s 29.74-point loss, for a 50.09-point loss since the start of the week.

Declining issues outnumbered advances 873 to 660 on the New York Stock Exchange, where volume came to an estimated 159.35 million shares at 5 p.m. EDT, against Tuesday’s 160.19 million.

Strength in the bond market helped contain stock losses, analysts said. The weak durable goods report pushed bond yields down on expectations of further interest rate cuts.

“Durable goods was a real shocker,” said Thom Brown, a managing director at Rutherford Brown & Catherwood. He said stock investors now must go back to deciding whether the good news of potentially lower interest rates outweighs the bad news of a continuing weak economy.

Among the market highlights:

* Several major companies suffered from poor earnings reports, including Kimberly-Clark, off 6 3/4 to 93 1/4; 3M Co., down 2 1/2 to 87 1/8, and Avon Products, down 3 to 44 5/8.

* Besides 3M, the Dow’s weakness was concentrated in Disney, off 2 to 119 3/8; Alcoa, off 1 3/4 to 70 5/8, and International Paper, down 1 1/2 to 68.

* On the plus side, favorable earnings reports boosted Anheuser-Busch 1/2 to 48 3/4 and Harley-Davidson 1 5/8 to 37 5/8.

* McDonnell Douglas slumped 2 1/8 to 50 7/8 on renewed concerns about its financial health.

* Insurance stocks were slammed again on worries about potential real estate losses. Aetna dropped 2 1/4 to 36 7/8, AIG fell 1 1/8 to 82 1/2, and Chubb lost 1 3/8 to 69 1/2.

* Biotech giant Amgen slipped 1 3/4 to 139 1/2 despite announcing a 3-for-1 stock split.

Overseas, stocks closed sharply higher in Tokyo in thin trading. The 225-share Nikkei average rose 538.49 points to 23,297.47.

In Frankfurt, Germany, shares ended a thin session down 0.7%, wiping out a small gain the previous day. The 30-share DAX average fell 11.25 points to 1,621.69.

The London market’s record-breaking rally halted as buyers stopped to catch their breath. The Financial Times 100-share average fell 7.4 points to 2,580.5.

Credit

Interest rates fell sharply on economic reports that cast doubt on the strength of the recovery.

The Treasury’s 30-year bond gained 13/16 point, or $8.13 per $1,000 value. Its yield tumbled to 8.41% from 8.49% on Tuesday.

The durable goods report and a weak auto sales report for mid-July underpinned the decline in interest rates. Auto sales for the latest 10-day period slipped back from recent improvements.

“The indicators are mixed,” said Marilyn Schaja, a money market economist at Donaldson Lufkin & Jenrette Securities. “This was just one more sign that the economy is really not all that strong.”

Bonds also got a boost from a successful auction of five-year Treasury notes. The securities sold at an average yield of 7.89%.

The federal funds rate, the interest on overnight loans between banks, was 5.25%, down from 5.675% on Tuesday.

Currency

The dollar fell against most major currencies after the surprising drop in durable goods orders.

That economic data could put further pressure on the Federal Reserve to lower interest rates as a way to help the economy. Lower interest rates weaken the dollar by making dollar-denominated securities less enticing.

“The market was already pushing down before (the durable goods report), but it extended it even further,” said Andrew Hodge, corporate trader at Bank Brussels Lambert in New York.

In New York, the dollar plunged to 1.738 German marks from 1.758 on Tuesday.

But the dollar rose 0.25 yen to 137.50 yen in New York on the belief that a weak Japanese economy could spur interest rate cuts in that country as well, Hodge said.

The British pound strengthened to $1.6920 from Tuesday’s $1.6825.

Other dollar rates in New York, compared to Tuesday, included: 1.513 Swiss francs, down from 1.526; 5.906 French francs, down from 5.967; 1,294.75 Italian lire, down from 1,310.50, and 1.153 Canadian dollars, down from 1.155.

Commodities

Silver prices plummeted to an 11-week low on New York’s Commodity Exchange amid fears of a renewed recession.

On other commodity markets, grains and soybeans fell, livestock futures were mostly higher and energy futures were mixed.

Silver futures settled 27.6 to 32 cents lower in New York, with the contract for delivery in July down a stunning 27.6 cents, to $3.98 an ounce. That was the lowest settlement of a near-term silver contract since May 3.

Gold futures dropped $3.80 to $4.20, with August contracts at $364.70 an ounce.

Platinum futures plunged $12.30 to $12.80 on the New York Merc, with the July contract settling at $364.50 an ounce.

Silver had slipped about 6 cents an ounce in each of the two previous sessions. It lost its footing completely Wednesday after release of the durable goods report. Traders fear a new economic downturn could crush industrial demand for silver, used in such products as film.

Elsewhere, the September contract for light, sweet crude oil ended the day 20 cents higher at $21.52 a 42-gallon barrel on the New York Merc.

Market Roundup, D8