Weak Factory Report Keeps Dow Reined In : Market Overview

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

* The stock market posted scattered gains for a second straight session, despite a bearish report on durable goods orders. The Dow Jones industrial average rose 5.08 points to 3,290.70.

* Tokyo stocks plunged anew, as did the Mexican market.

* The dollar slumped and bond yields fell after the durable goods report, and after President Bush pleaded for lower interest rates.

Stocks

The market showed surprising resilience in the face of a report showing durable goods orders dropped 2.4% in May. Most analysts expected a small increase.

The decline in orders suggested that demand for such big-ticket items as machinery and appliances is fading, which casts new doubts on the economy’s recovery.

Yet many industrial stocks rallied after the news. Some investors apparently bet that the weakening economy will force the Federal Reserve to cut interest rates again, fueling a new burst of activity in the economy--such as the winter growth that followed the Fed’s late-December rate cut.

Advancing issues narrowly outnumbered decliners on the New York Stock Exchange, 857 to 820. Volume was 194.35 million shares, up from 190.85 million Tuesday.

Traders said that, despite the small rally, many investors remain fearful that second-quarter corporate earnings won’t match expectations. The durable goods report merely exacerbated those fears.

Among the market highlights:

* Industrial stocks rising sharply included Phelps Dodge, up 3/4 to 49 3/4; TRW, up 7/8 to 54; Ingersoll-Rand, up 1 3/8 to 27 3/4; Cooper Tire, up 1 1/8 to 47; and Stanley Works, up 1 3/8 to 40 1/8.

Paper and lumber stocks were strong in trading related to a decision expected today in the U.S.-Canada battle over lumber imports and exports. International Paper rose 1 1/8 to 68 1/2, Weyerhaeuser jumped 1 3/8 to 34 3/8, Georgia Pacific gained 1 1/4 to 59 1/4 and Stone Container leaped 1 5/8 to 24 3/4.

* Tobacco stocks plunged, then recovered most of their losses after the U.S. Supreme Court decided that individuals injured by cigarette smoking can sue tobacco companies for intentionally misrepresenting the health effects of smoking. The companies said the ruling’s wording was a victory.

Philip Morris traded as low as 69 1/2 during the day, but closed at 73 3/4, up 5/8. RJR Nabisco, down as low as 8 1/8 during trading, closed at 9 3/8, off 1/8. American Brands eased 1/8 to 45 3/8, and Loews, parent of Lorillard, fell 2 1/8 to 111.

* IBM added to its recent gains, up 1 3/4 to 97 5/8 on bullish reports of recent insider buying in the long-depressed stock.

* Insurance stocks were strong across the board, helped in part by prospects for lower interest rates. St. Paul Cos. gained 1 1/8 to 74 3/4, Chubb rose 1 3/4 to 72 5/8, AIG jumped 2 3/8 to 89 and Torchmark was up 2 to 66 7/8.

* Anheuser-Busch added 1 1/4 to 55 3/4. Its board authorized the buyback of up to 20 million shares, or 7% of those outstanding.

* Among Southland issues, Caesars World slipped 3/8 to 27 3/8, despite news that it had agreed to manage a New Orleans casino proposed by investor Christopher Hemmeter.

Calabasas-based Players International gained 3/16 to 3 5/16. It said it completed financing for its “Players Riverboat Casino” in Metropolis, Ill., through a private placement funded by a Merv Griffin company.

* Among the big losers, shoemaker Stride Rite tumbled 4 5/8 to 20 3/8. Its second-quarter earnings fell short of analysts’ estimates.

Also, Perfumania plunged 4 5/8 to 8 5/8. The perfume marketer said it was investigating allegations that it bought about $3.5 million worth of a counterfeit version of a licensed fragrance product from a foreign supplier.

In foreign markets, Tokyo again declined broadly. The Nikkei index closed at a 68-month low, off 253.32 points or 1.6% to 15,853.67.

London followed Tokyo, as the Financial Times 100-share average dropped 28 points to 2,532.6. Frankfurt’s DAX average eased 2.65 points to 1,768.49.

Mexico City also had a rough day. Its Bolsa stock index plunged 65.78 points or 4% to 1,562.71, hurt by another rise in Mexican interest rates. In the United States, NYSE shares of Telmex fell 1 7/8 to 42 3/4.

Credit

The Treasury’s 30-year bond rose 1/4 point in price, or $2.50 per $1,000. Its yield slipped to 7.82% from 7.84% Tuesday.

The drop in May durable goods orders boosted hopes that the Federal Reserve will be forced to lower interest rates again soon. President Bush, in an interview, called on the Fed to act.

The market’s positive tone helped boost demand at the Treasury’s monthly sale of five-year notes. The average yield on the notes was 6.43%.

The fed funds rate, the rate on overnight loans between banks, was 3.75% versus 3.50% Tuesday.

Currency

The dollar tumbled in heavy trading after the durable goods report painted a picture of a weak economy.

In New York, the dollar closed at 1.550 German marks, down from 1.566 marks Tuesday. It fell to 126.45 Japanese yen from 127.28.

“The dollar really needed to see some good economic reports,” said Mike Faust, analyst with MMS International. “And when we didn’t see it, it set the stage for some pretty solid losses.”

Strong economic growth normally boosts a nation’s currency by attracting investment. Likewise, a weak economy tends to depress a currency.

The dollar was further pressured by President Bush’s call for the Federal Reserve to lower interest rates. A drop in rates would make U.S. bonds less attractive to foreign investors, thus reducing demand for the dollar.

Commodities

A shutdown of the U.S. freight rail system contributed to a steep rise in heating oil futures.

Analyst James Steel of Refco Inc. in New York said heating oil jumped because the rail stoppage means that more goods will be shipped by trucks, which are heavy users of diesel fuel, a relative of heating oil.

Home heating oil for July settled at 63.66 cents a gallon, up 1.55 cents on the New York Merc.

Light, sweet crude oil continued to build on recent gains. The August contract closed at $22.89 a barrel, up 30 cents.

Gold for June dropped $1.70 to $342.80 an ounce and July silver slipped a penny to $4.02 on New York’s Comex.