Dow Slips 1.60 as Investors Remain Wary : Market Overview

* A summer lull settled over Wall Street on Friday with stocks ending slightly lower and volume shrinking dramatically. The Dow Jones industrial average slipped 1.60 points to 3,282.41, finishing the week with a net loss of 2.94 points.

* Tokyo stocks suffered another major loss, while Mexico stabilized.

* Treasury bond yields closed unchanged. They have slid in recent days on market expectations that the Federal Reserve will lower interest rates again soon.

Stocks

Most investors stayed out of the market amid unanswered questions about interest rates and second-quarter corporate earnings.

Big Board volume fell to 154.78 million shares from Thursday’s 182.96 million. Traders said some of their compatriots have already left on long vacations that will cover the July 4 holiday next week.

Still, advancing issues slightly outnumbered declines on the New York Stock Exchange for a second straight session.

The latest reports on the economy have provided new signs that the recovery is proceeding erratically at best. That has put many investors in a wary mood as they look ahead to corporate earnings reports for the second quarter, which ends on Tuesday.

At the same time, economic weakness has revived conjecture that the Federal Reserve might consider relaxing its credit policy further in the not-too-distant future. The Fed’s policy makers will meet next week.

Among the market highlights:

* Bank stocks were the day’s stars, on new hopes for lower interest rates. A drop in rates would further widen the spread between what the banks pay on deposits and what they earn on loans--boosting their profits.

Citicorp gained 3/4 to 21 1/4, trading at new 52-week highs. Also, BankAmerica was up 1 1/4 to 45, Chemical Banking added 7/8 to 37 1/8, Bankers Trust rose 1 3/4 to 57 7/8, and J. P. Morgan gained 1 7/8 to 56.

* Mortgage stocks also gained on rate-cut expectations. Federal National Mortgage climbed 1 7/8 to 59 5/8, and Federal Home Loan Mortgage was up 1/2 to 37 7/8.

* Defense issues were higher. Martin Marietta rose 1 1/2 to 51 3/8. The company raised its dividend 12% and said it may buy back as much as 17% of its stock.

Other winners included Lockheed, up 1 1/2 to 43 7/8; Raytheon, up 1 1/8 to 44 1/2, and Loral, up 3/8 to 31 1/8.

* Technology stocks were broadly lower again, continuing to suffer from software firm Lotus Development’s projection Thursday of weak second-quarter earnings. Lotus eased 5/8 to 17 3/4 after plunging 5 5/8 Thursday.

Other losers included Microsoft, down 3 1/4 to 66 3/4; Conner Peripherals, off 7/8 to 17 1/2; BMC Software, which fell 2 3/4 to 39 5/8, and Advanced Logic Research, down 1/4 to a new 1992 low of 4 3/4.

Also, Sequoia Systems, a computer maker, fell 1 1/8 to 8 3/4. The company said its earnings for the quarter and fiscal year ending next week will fall significantly short of estimates.

* Oil stocks also were weak. Arco fell 2 3/8 to 107 5/8, Chevron lost 1/2 to 67 1/4, and Amoco sank 1/2 to 47 1/4.

* Starbucks, a coffee retailer, went public at 17 a share and soared to close at 21 1/2 on the NASDAQ market.

Overseas, stocks slumped again in Tokyo as the Nikkei average posted a six-year closing low.

Dealers dumped stock ahead of the weekend, and a weak futures market also pressured prices, brokers said. The Nikkei tumbled 330.99 points, or 2.1%, to 15,812.73.

London shares also sank. The Financial Times 100-share average lost 23.2 points to close at 2,534.1, a drop of 50.7 points for the week.

Frankfurt stocks ended mostly down, with heavy losses in the auto sector. The DAX index fell 10.76 points to 1,754.13.

In Mexico City, the Bolsa index closed a hectic week with a gain of 1.05 points to 1,600.97.

Credit

The price of the Treasury’s benchmark 30-year bond was unchanged from Thursday, and its yield remained at 7.78%.

The Commerce Department reported personal incomes rose 0.3% in May, but consumer spending grew at 0.5%. Economists said the trend showed consumers won’t be able to sustain that pace of spending in the coming months unless the economy grows, pulling incomes up as well.

Dan Seto, an economist for Nikko Securities Co., said the consumer spending report helped support bond prices, especially for the longer-term issues. Bond investors believe that the economy is weak enough to justify another cut in interest rates by the Federal Reserve.

The federal funds rate, the interest on overnight loans between banks, was quoted at 3.25%, down from 3.81% Thursday.

Currency

The dollar was mixed against major foreign currencies in trading largely pegged to sour economic news earlier in the week.

After heavy selling in the last two sessions, a technical correction propped up the dollar slightly on Friday. However, investors were still reluctant to buy the greenback ahead of the weekend, causing its downward drift.

In New York, the dollar closed at to 1.536 German marks, down from Thursday’s 1.538 marks, and at 125.70 Japanese yen, up from 125.15 Thursday.

Commodities

Cocoa futures prices rose to a 3 1/2-week high Friday, but analysts disagreed on the reasons and were reluctant to declare an end to the downward spiral that reached a 19-year low earlier in the week.

Also on New York’s Coffee, Sugar & Cocoa Exchange, coffee futures rebounded from a 17-year low.

Cocoa beans for July delivery surged $60 to $861 per metric ton, the highest settlement price for near-term deliveries since June 3. Estimated volume was relatively high at about 9,900 contracts.

Elsewhere, oil prices fell on the New York Mercantile Exchange, with light, sweet crude oil for August delivery dropping 14 cents to $22.44 a barrel.

On New York’s Commodity Exchange, June gold dipped 70 cents to $342.50 an ounce, and July silver sank 2.8 cents to $3.975 an ounce.