Dow Dips 21.69 After News of IBM Rating

Market Overview

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

* After flirting with record highs, stocks moved sharply downward after Moody’s Investors Service said it downgraded IBM Corp.’s debt. Computerized sell programs finished off the Dow Jones industrial average, and it closed down 21.69 points at 3,268.56

* The dollar staged an impressive advance on world foreign exchange markets, piercing key technical levels against major currencies in hectic trading.

* Bond yields were mixed on several reports showing the economy chugging toward recovery and a rumor that employment figures would be revised to show more people working.

Stocks

Stock prices showed little reaction to reports showing that factory orders rose 0.4% in January, less than the 1.0% expected.

Investors seemed to hesitate after the Dow’s recent rise to new heights. The market waffled all day, until the IBM debt downgrade sparked selling.

Then “in the last hour they (computer programs) really . . . pulled the plug,” said Joseph Barthel, strategist at Fahnestock & Co. Looking ahead to the next major economic indicator, he said, “Friday’s employment numbers will hold the key to the near-term direction of the market.”

In the broader market, declining issues outnumbered advances by about 5 to 3 on the New York Stock Exchange. Volume totaled 208.91 million shares, down from 204.65 million Tuesday.

Worries have been mounting lately that stocks are due for a “correction,” or interim pullback from their recent lofty levels.

Among the market highlights:

* IBM closed off 7/8 at 87 3/8, its low for the day. IBM’s credit rating was cut to AA-2 from AAA by Moody’s, which cited the company’s struggles to regain competitiveness.

* Among the day’s big losers were several growth stocks that have been under pressure lately. Retailer Gap Inc. sank 2 1/4 to 48 3/8, drug firm Syntex gave up 2 1/8 to 47 1/2, and medical device firm U.S. Surgical fell 2 to 108 1/4.

* Sears added 1 1/8 to 45 1/2. Oppenheimer analyst Bernard Sosnick reiterated a buy on the stock, citing the retailer’s announcement Tuesday that it would become a major vendor of Goodyear tires.

* Other stocks gaining on analysts’ recommendations included Litton Industries, up 1 1/2 to 97 1/2 after Kidder Peabody reiterated a buy ; developer Del Webb, up 1 3/4 to 21 3/4 after Oppenheimer repeated a buy , and retailer Tiffany, up 4 to 50 3/4 after Alex. Brown recommended the stock.

* Telefonos de Mexico, the Mexican phone giant, tumbled 2 1/8 to 56 1/4 after a drop in the stock on the Mexico City exchange. The Mexican government is contemplating the idea of making a new public offering of the company’s “L” shares.

U.S.-traded Mexican stock funds were hard hit on the news, though analysts noted that Mexican stocks were ripe for profit taking. Mexico Fund slid 2 1/8 to 31 5/8, Mexico Equity Fund dropped 2 5/8 to 18 3/8, and Emerging Mexico lost 2 to 24 7/8. All trade on the NYSE.

* El Segundo-based Computer Sciences dropped 2 3/4 to 75 1/2 on renewed worries about a federal report that criticizes the company’s relationship with the Environmental Protection Agency.

* Culver City-based satellite communications firm IDB Communications rocketed 2 1/4 to 16 on the NASDAQ market. The firm’s chairman and president revealed that they recently bought large blocks of the stock on optimism about the firm’s earnings growth.

Overseas, Tokyo’s 225-share Nikkei average rose 53.71 points, or 0.26%, to 21,105.42. In London, the Financial Times 100-share average ended down 7.0 points to 2,558.4. In Frankfurt, the 30-share DAX average closed off 4.26 points at 1,759.05.

Credit

Bond yields jumped after a widely circulated rumor that the Labor Department would revise the January employment numbers to show a major gain in non-farm payrolls, said Kermit Claytor, analyst for MMS International.

But yields fell back by the close: The price of the Treasury’s bellwether 30-year bond gained 3/32 point, or 94 cents per $1,000 in face amount, at closing. Its yield fell to 7.91% from 7.92% Tuesday.

The federal government is due to release February’s employment figures Friday.

Yields fell back partly for technical reasons. Long-term yields had risen faster than short-term yields earlier in the week, and Claytor said a correction was overdue.

Bonds were also aided by release of the auto sales report in the afternoon. Sales of North American-made cars and light trucks fell 9.9% in late February, major auto makers reported. That helped cool concerns about a fast economic recovery.

The federal funds rate, the interest on overnight loans between banks, was quoted at 4%, up from 3.75% late Tuesday.

Currency

Analysts said the dollar’s break through key technical levels triggered a buying spree. “It went up like a rocket,” said Stephen Flanagan, trader at Mitsubishi Bank Ltd.

The currency was supported by the continued evidence that the U.S. economy has entered a recovery phase.

In New York, the dollar rose to 1.669 German marks, up from 1.6585 marks Tuesday. The dollar settled at 131.75 Japanese yen, up from Tuesday’s 131.03 yen.

Randolph Donney, research director at Pegasus Econometric Group in Hoboken, N.J., said the factory orders report was “a little less than expected, mediocre.” But he noted that “the tone of the recent economic data has been very, very constructive.”

He was referring to positive reports on new home sales, a bullish survey of purchasing managers and a jump in the government’s key forecasting gauge, all of which were released earlier this week.

Traders said the dollar also drew support from widespread rumors that the Labor Department’s upcoming jobless report, due to be released Friday, will be extremely positive. Many are expecting a sharp upward revision in January’s figures as well as a favorable gain in non-farm payrolls during February.

Commodities

Near-term delivery prices for cattle futures rose sharply as dealers saw supplies tightening and demand strengthening. Other livestock and meat futures also advanced on the Chicago Mercantile Exchange.

On other commodity markets, coffee futures fell; energy futures were mixed; grains and soybeans were mixed, and precious metals edged higher.

Live cattle for April delivery surged 0.98 cent to 78.75 cents a pound, the highest settlement in the life of the contract, after posting an intra-day high of 78.85 cents.

Elsewhere, crude oil was barely changed on the New York Mercantile Exchange, with light, sweet crude oil for April delivery down 1 cent to $18.63 a barrel.

On New York’s Commodity Exchange, gold for April delivery rose 20 cents to $351.60 an ounce; March silver rose 0.9 cent to $4.11 an ounce.

Market Roundup, D8