Concern Over Earnings Foils Dow’s Advance

Stocks ended slightly higher Tuesday, drawing support from more talk about a possible cut in interest rates. But concern over third-quarter earnings kept gains limited. However, the key small-stock index closed at a new high.

In the credit markets, Treasury bond prices moved stubbornly higher despite a monthly survey showing that U.S. manufacturing continued to expand in September.

The dollar also ended mostly higher in unusually quiet trading.

Stocks

The Dow Jones industrial average inched up 1.57 points to 3,018.34, after steadily giving up a morning jump of about 15 points.

On the New York Stock Exchange, advancing issues outnumbered declines by about 9 to 7, as Big Board volume rose to 165.5 million shares, up from Monday’s 149.83 million.

While big stocks stalled, the NASDAQ index of mostly smaller stocks climbed 1.63 points to close at a record high of 528.51, surpassing the old record of 527.82 set on Sept. 25.

Analysts said investors were weighing new data, including leading indicators and purchasing managers’ data, which gave a mixed reading on the economy.

The government’s main economic forecasting gauge--the index of leading indicators--was unchanged in August after six straight monthly gains, reflecting weakness in areas from construction plans to money supply.

But the purchasing managers’ index, a key measure of business activity, rose for the eighth straight month in September to its highest level in nearly three years.

Many investors are still reluctant to believe that the economic recovery is for real, so they’re unwilling to buy the industrial stocks that usually lead the market after a recession. That was evident Tuesday, as many industrial stocks dropped while “safe” food and drug stocks gained.

But some analysts argue that the smartest stocks to buy now, for 1992, are the laggard industrial issues. (Market Beat column, D3.)

Among the market highlights:

* Food and drug issues leading the market higher included CPC, up 1 1/8 to 90 5/8; Seagram, up 1 7/8 to 114 1/8; Philip Morris, up 1 1/2 to 73 5/8; Merck, up 1 to 131 1/8, and Bristol-Myers, up 1 1/4 to 84. Many biotech issues also soared again, led by Centocor, up 3 1/4 to 52.

But Upjohn fell 2 1/4 to 44 1/2 after Britain suspended the firm’s Halcion sleeping pill based on allegations of incomplete safety data.

* Many industrial issues were broadly lower on worries about near-term profits. Paper and forest-product stocks were particularly hard hit, led by Weyerhaeuser, down 1 3/4 to 26. Other industrial losers included Phelps Dodge, down 2 to 72 3/4; Illinois Tool Works, off 1 3/8 to 66 7/8, and Reynolds Metals, down 1 1/8 to 55 7/8.

* Software firm Borland jumped 3 3/8 to 50 1/4 after the company said the U.S. Copyright Office supported Borland’s side in a patent fight with Lotus Development. Lotus, which fell 1 3/4 to 31 1/2, said Borland was misrepresenting the copyright office’s stance.

Elsewhere, El Segundo-based Computer Sciences rebounded 1 1/4 to 65 after losing 1 on Monday, after Boeing edged the firm out for a $1.6-billion Army contract.

* Defense stocks continued to slip on concern about further U.S. defense spending cuts. Shearson downgraded its rating on eight companies. Raytheon fell 2 to 75, Lockheed lost 1 1/2 to 38 3/8, Logicon fell 5/8 to 30 3/4, and United Technologies eased 7/8 to 44 1/8.

* Food wholesaler Sysco fell 1 7/8 to 38 3/8. Merrill Lynch downgraded its rating on the company. L.A.-based Rykoff-Sexton, a Sysco competitor, dropped 1/2 to 19 7/8.

Overseas, Tokyo stocks surged after Japan’s central bank cut bank reserve ratios, seen as the first step toward easier credit. The Nikkei 225-share index jumped 460.57 points, or 1.9%, to 24,377.01.

Stocks closed almost 1% higher in London on news that Britain’s government would not call a November election. The Financial Times 100-share average closed 23.9 points higher at 2,645.6.

German shares ended mixed, with Frankfurt’s DAX average ending at 1,609.62 points, 2.59 points above Monday’s close.

Credit

The price of the Treasury’s bellwether 30-year bond, down 1/16 point in early trading, closed up 3/32 point, or 94 cents, per $1,000. Its yield was quoted at 7.8%, unchanged from Monday.

The long bond’s price has rallied 1 1/2 points in the past four sessions, buoyed by a growing conviction that the Federal Reserve is poised to ease interest rates.

The Fed gave no clues about its course after a meeting Tuesday of its policy-making Federal Open Market Committee. But many traders believe that the Fed will move after Friday’s September unemployment report, expected to show continued weakness in job growth.

Bond yields in general moved lower Tuesday despite an economic report showing new strength in the manufacturing sector. Any sign of economic health could be seen as a deterrent to lower interest rates, but bond traders appear to believe easier credit is inevitable.

The federal funds rate, the interest on overnight loans between banks, was quoted at 5.313%, down from 5.5% late Monday.

Currency

The dollar posted moderate gains in European trading, and the currency advanced in similar fashion in New York trading.

Some signs of economic strength “gave the dollar a boost, but there wasn’t that much follow-through,” said Earl Johnson, a vice president at Chicago-based Harris Trust & Savings Bank. He noted that the overall sentiment toward the U.S. currency remains bearish.

In New York, the dollar closed at 1.666 German marks, up from 1.665 Monday, and at 133.40 Japanese yen, up from 132.95 Monday.

Commodities

Prices of grain futures rose sharply on the Chicago Board of Trade after the Bush Administration stepped up the pace of U.S. food aid to the Soviet Union.

Wheat for delivery in December rose 7.25 cents to $3.3975 a bushel; December corn rose 5.50 cents to $2.5475 a bushel; November soybeans rose 1.50 cents to $5.885.

Gold was little changed on New York’s Comex after rising $5 Monday on reports that Soviet gold reserves have dwindled.

October gold rose 20 cents to $354.20 an ounce; December silver settled at $4.20, up 2.5 cents.

Crude oil prices fell, then rose to finish the day unchanged in light dealings on the New York Mercantile Exchange. Light, sweet crude oil for November delivery settled at $22.22 per barrel, down 1 cent.

Market Roundup, D8