Dow Declines 16.77 Amid Profit Taking

Market Overview

Highlights of Tuesday’s market activity, compiled from Times staff and wire reports:

* Stocks fell when a computer-driven selloff capped a session marked by profit taking and continued dismay over the economy. The Dow Jones industrials lost 16.77 points to 2,902.28.

* Bond yields inched lower as traders continued to expect lower interest rates, even though the Federal Reserve failed to oblige after a policy meeting.

Stocks

Stocks opened on a soft note and held at lower levels after the release of a disappointing government report showing that housing starts skidded 2.1% in November.

Later, traders awaited signs that interest rates would be cut again after a meeting of the Fed’s Open Market Committee. But dealers got a surprise instead.

Around midday, the Fed took steps to drain reserves from the banking system, a move interpreted as a sign that the central bank will keep rates at current levels.

Kevin Flanagan, economist at Dean Witter Reynolds, said he believed that the action was a short-term move and that it was still likely that the Fed would ease credit further to help the sputtering economy.

Nonetheless, the stock market was disappointed by the lack of Fed action. Declining issues outnumbered winners by a broad 2 to 1 margin on the New York Stock Exchange. Big Board volume was 191.73 million shares, versus Monday’s 172.53 million.

“People were maintaining a trading range hoping for some Fed action,” said James Shroeder, analyst with MMS International in Chicago. “But the lack of action and more weak economic data shows the momentum (toward economic recovery) that was there is long gone.”

Still, traders say there is an underlying belief on Wall Street that the Fed will do whatever it takes to keep the economy from weakening much further. That faith continues to keep buyers coming into the market--or at least into selected stocks.

Among the market highlights:

* Retail stocks were particularly weak on recurring fears of a gloomy Christmas for consumer spending. Dillard Department Stores sank 8 to 118 1/4 after several analysts cut 1991 earnings estimates.

Other retail losers included Penney, down 2 1/2 to 49; Dayton Hudson, down 1 3/8 to 59 1/8; Ann Taylor, off 7/8 to 13 1/2, and Nordstrom, off 1 1/2 to 31 3/4.

* Banking stocks sank, led by Citicorp. The stock dropped 1/4 to 9 3/8 after trading as low as 8 3/4--a new 1991 low. The bank denied market speculation about further losses and speculation that John Reed, its chief executive, was resigning. Other bank losers included Wells Fargo, down 1 1/2 to 53 3/4, and Chase Manhattan, off 3/4 to 15 3/8.

* Thousand Oaks-based biotech firm Amgen lost 1 3/4 to 60 1/2. Soundview Financial cut its 1992 earnings estimate to $1.70 a share from $2 and rated the stock hold, down from buy . Soundview cited the likelihood of increased competition in the blood-growth drugs where Amgen dominates.

Meanwhile, Amgen competitor Immunex rose 1 3/4 to 53 3/4 on expectations that a U.S. patent covering genetically engineered fusion proteins will strengthen its position in the world market for such drugs.

* Among other health care stocks, Century Medicorp soared 1 3/4 to 14 1/2 after the Southland HMO firm said it plans to make a $5.5 million acquisition. It did not name the target.

* Some paper stocks fell after Merrill Lynch cut its estimates and ratings on the group, citing the economy. International Paper was down 1 1/8 to 63 3/4, Champion International lost 3/8 to 22 5/8, Boise Cascade fell 1 to 18 3/4, and Georgia Pacific fell 2 5/8 to 48 7/8.

* Hair-care products firm DEP Corp. jumped 1 3/8 to 12 after canceling a planned 1.95-million-share offering. It cited weak market conditions.

Overseas, Tokyo stocks surrendered early gains to close lower. The 225-share Nikkei average lost 100.38 points to 22,736.29.

Shares ended higher in Frankfurt with the DAX index rising 8.04 points to 1,560.93. In London, the Financial Times 100-share average slid 7.9 points to 2,432.9.

Credit

The bond market was focused on the Fed’s Open Market Committee meeting. And though the Fed closed the meeting without immediately ordering an interest-rate cut, many bond traders still believe that rates will have to drop further in the months ahead. Hence, bond yields continued to ease Tuesday.

The price of the Treasury’s bellwether 30-year bond rose 1/8 point, or $1.25 per $1,000. Its yield slipped to 7.74% from 7.75% late Monday.

The Fed has cut its key discount rate 2 percentage points this year, to 4.5% in the most recent half-point cut Nov. 6. The discount rate is the Fed’s interest charge on loans to member banks.

The federal funds rate is the interest banks charge each other on overnight loans. It stood at 4.375% Tuesday, down from 4.625% late Monday.

Currency

Widespread expectations that the Federal Reserve will cut interest rates in a new bid to prop up the flagging economy pushed the dollar lower in dull trading.

The weak housing construction report barely fazed the market, where volumes thinned as institutional investors closed their books for the end of the year.

“You just can’t gather any direction going into Christmas as far as the market is concerned,” said Carl Amendola, a trader at Hypobank.

The dollar ended in New York at 1.570 German marks and 128.29 Japanese yen, down from Monday’s 1.575 and 128.40. The British pound rose to $1.8275, more expensive than $1.8245 late Monday.

Commodities

Platinum futures fell sharply on the New York Merc after an overnight plunge in Tokyo, where speculators took profits amid pessimism about the world economy.

Platinum for delivery in January fell $9.30 to $347.80 an ounce on the Merc. Meanwhile, on New York’s Comex, December gold fell $1.70 to $357.30 an ounce; December silver rose 0.8 cent to $3.83.

Platinum’s plunge in New York was largely the aftermath of a sharp drop in platinum futures overnight on the Tokyo Commodity Exchange. Traders there who had loaded up on December delivery contracts in recent weeks liquidated those positions ahead of the contract’s expiration on Thursday, analysts said.

Elsewhere, heating oil led the petroleum markets lower on the New York Merc amid predictions of above-normal temperatures in most of the eastern United States during the first half of next week. Light, sweet crude oil for January fell 31 cents to $19.45 a barrel, while January heating oil dropped 1.01 cents to 55.83 cents a gallon.