Dow Drops 26.70 on Profit Worries

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

* The stock market suffered another broad setback after taking its sharpest drop in two months Tuesday. The Dow Jones industrial average fell 26.70 points to 3,343.22 after losing 34.21 points Tuesday.

* Cocoa futures prices slumped to their lowest level in two decades. Meanwhile, oil prices continued to inch higher.

Stocks

The continuing breadth of this week’s stock selloff was illustrated by the number of stocks declining versus the number advancing: On the New York Stock Exchange, losers topped winners by almost 2 to 1 for a second day in a row.

Big Board volume surged to an estimated 210.75 million shares, up from 191.71 million Tuesday.

Robert Caputo, director of research at Swiss Bank Corp., said some investors were growing nervous about corporate earnings.

“We’re starting to see question marks about pumped-up expectations for the second quarter,” he said. “That’s really been troubling the market.”

He noted that analysts have recently cut estimates of some paper and chemical companies.

Still, traders said the market’s decline continued to be orderly, and many suggested that the big problem was simply that many buyers had stepped away, waiting for more economic reports.

Today, the government will report on May producer prices and retail sales trends; Friday, the May consumer price report will be issued. Wall Street is hoping for continuing low inflation, along with new evidence that the economy is recovering.

Among the market highlights:

* Transportation stocks once again led the market lower, as fare-war concerns hit airlines and economic worries weighed on railroads. Among the airlines, American Airlines’ parent, AMR, dropped 1 1/2 to 63 1/8, United Airlines’ parent, UAL, lost 2 to 115 7/8, and Delta slumped 1 3/8 to 57 1/4.

Among the rails, CSX plunged 3 1/4 to 61, Conrail tumbled 2 1/8 to 89 3/4, and Burlington Northern dropped 1 3/4 to 41 1/4.

* Other industrial stocks were mixed, however. Allied Signal lost 1 3/4 to 57 5/8, and Goodyear slid 3 1/4 to 65 1/4, but International Paper gained 1 1/2 to 66 3/8, Phelps Dodge added 1/2 to 47 1/2, and Ford rose 1/4 to 47 1/4.

* Many old-favorite growth stocks resumed their downward trek. Philip Morris sank 1 7/8 to 72 1/4, a 1992 low. Other losers included Bristol-Myers, off 1 5/8 to 62 7/8; U.S. Healthcare, down 1 5/8 to 47 3/8; Disney, off 1/2 to 36 1/8, and Federal National Mortgage, which lost 1 5/8 to 57.

* Warner-Lambert fell 1 1/8 to 59 1/8, even though it said it expects a 13% increase in earnings per share for the second quarter.

* Oil stocks were one of the few bright spots, as petroleum prices continued to move up. Mobil gained 3/4 to 67 5/8, Halliburton added 3/4 to 28 1/2, Arco inched up 7/8 to 116, and Texaco gained 1 to 65 3/8.

* Some financial stocks also were strong. Glenfed, parent of Glendale Federal Bank, rose 7/8 to 5 3/8, though there was no news. Also, Citicorp added 1/2 to 19 3/4. Its offer to exchange common stock for some of its preferred shares failed to win a majority of investors, but drew a respectable showing nonetheless, analysts said.

* Northern Telecom fell 2 7/8 to 36 5/8. It said it was likely to post lower second-quarter revenue.

Overseas, investors in Tokyo stayed on the sidelines ahead of two events Friday: a futures settlement and a key quarterly economic report. The Nikkei average fell 102.17 points to 17,742.87.

In Frankfurt, the DAX index rose 3.50 points to 1,789.76. In London, the Financial Times 100-stock index was little changed, rising 0.7 points to 2,636.1.

In Mexico City, the Bolsa index tumbled 47.36 points, or 2.6%, to 1,796.34. Rumors--later denied--said that the Telmex workers’ union might seek to sell more of its stock in the phone giant.

Credit

Bond yields rose in advance of key inflation reports.

The Treasury’s key 30-year issue was off 7/32 point, or $2.19 per $1,000. Its yield, which rises when the price falls, closed at 7.90%, up from 7.88% Tuesday.

Many traders have been in a holding pattern since Friday, when the government reported an unexpectedly strong increase in the May unemployment rate, to 7.5%.

The weakness suggested that the Federal Reserve could loosen credit to stimulate the economy. But other recent data has pointed to a strengthening economy, which diminishes chances of a Fed ease.

The federal funds rate, the interest on overnight loans between banks, rose to 4.5% from 3.0% Tuesday. The rate often fluctuates wildly on Wednesdays because of bank settlement procedures.

Currency

The dollar settled mostly higher in technically driven trading.

It rose at the expense of the German mark, which came under profit taking after a week of steady gains. The mark has drawn repeated support from Denmark’s rejection of the Maastricht treaty for European union.

The dollar rose in New York to 1.593 marks from 1.591 Tuesday. It also climbed to 127.55 Japanese yen from 127.50.

Commodities

Cocoa for delivery in July fell $36 a ton to $802 on the Coffee, Sugar & Cocoa Exchange in New York, lowest in two decades.

“There are very few things you can buy at 1970s prices, but cocoa is one of them,” said Hari Schwartz, an analyst at Cargill Investor Services. Analysts blame ballooning supply and the prospect of even more beans coming to market soon.

Elsewhere, light, sweet crude oil for July added 19 cents to $22.51 a barrel on the New York Merc.

Gold for June slipped 40 cents to $337.90 an ounce on New York’s Comex. June silver rose 1.1 cents to $4.05.

Market Roundup, D8