Dow Pauses for Breath, Declines 1.34 : Market Overview

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

* Stocks ended narrowly mixed as momentum from the previous day’s sharp rally waned and investors grew cautious about the strength of the economy and corporate profits. The Dow Jones industrial average closed off 1.34 points at 3,318.52.

* Oil prices fell sharply as speculators in the futures market staged a panicky selloff, with light, sweet crude oil for delivery in August down 64 cents a barrel to $21.60 at the New York Mercantile Exchange.

* Treasury bond yields were mostly higher as dealers sold securities in thin trading.

Stocks

Shares drifted during the day as nervous investors pulled back, waiting to see whether the Federal Reserve will lower interest rates again to stimulate the sluggish economy. That could help stock prices.

There was little news to move the market Tuesday.

The central bank’s policy setting Federal Open Market Committee met Tuesday and meets again today..

A series of sluggish economic reports lately has prompted many observers to conclude that the Fed has further room to ease credit conditions. That sentiment supported stocks Tuesday and drove the Dow sharply higher on Monday.

But investors also sat on the sidelines ahead of second-quarter earnings, which companies will begin to announce early next week, said Hugh Johnson, senior vice president with First Albany Corp.

“The market’s not willing to believe the economic recovery is in full swing and will be nervous until it does,” said William Dodge, chief investment strategist with Dean Witter Reynolds Inc.

In the broader market, advancing issues outnumbered declines by about 11 to 8 on the New York Stock Exchange.

Volume on the floor of the Big Board came to 200.98 million shares, up from 176.75 million in the previous session.

Government economic data released Tuesday was largely in line with economists’ expectations and offered little direction to the market.

The Commerce Department said its index of leading economic indicators rose 0.6%. Meanwhile, a report from the Conference Board, an industry group, showed consumer confidence in the economy stagnated in June.

Both reports underscored the modest pace of the recovery.

Among the market highlights:

* The most actively traded NYSE issue was Waste Management, down 3/4 at 33 5/8 after the company forecast poor second-quarter earnings. Among other actively traded NYSE issues, General Motors rose 1/4 to 44, and Glaxo rose 1/4 to 25 3/8.

* Boeing rose 7/8 to 39 7/8 after an analyst said the company was expected to win a big order from United Airlines.

* Bristol-Myers Squibb fell 1/4 to 65 7/8, Coca-Cola fell 3/8 to 40, General Electric fell 1 1/4 to 77 3/4, and Philip Morris rose 5/8 to 73 1/2.

* Crawford & Co., the insurance claim service, fell 7 1/8 to 19 3/4 on poor earnings projections.

* In NASDAQ market trading, First Chattanooga Financial surged 8 3/4 to 32 after reaching an agreement to be acquired with AmSouth Bancorp. Software Publishing fell 3 3/4 to 9 after saying it expects lower third-quarter earnings.

* Star Banc fell 5 1/2 to 32 after Fifth Third Bancorp withdrew its purchase offer, while Fifth Third added 2 to 43 3/4. Wetterau Inc. fell 5 1/8 to 25 1/2. The company has not agreed to terms of its acquisition by Super Valu Stores.

On overseas markets, share prices rebounded in Tokyo from a six-year low in light trading, with the 225-issue Nikkei average gaining 210.46 points, or 1.34%, to close at 15,951.73.

London’s Financial Times 100-share average closed up 5.4 points up at 2,521.2, while in Frankfurt, the 30-share DAX average finished 4.49 points lower at 1,752.63.

Credit

The price of the Treasury’s main 30-year bond fell 3/32 point, or 94 cents per $1,000 in face amount. Its yield rose to 7.78% from 7.77% late Monday.

Economists said there was little activity in advance of Thursday’s release of June unemployment figures.

That report is considered a key piece of evidence for the Federal Reserve in deciding whether to lower interest rates to stimulate the recovery. Lower rates push up bond prices.

The federal funds rate, the interest on overnight loans between banks, was quoted at 4.25%, up from 3.50% late Monday.

Currency

The dollar finished mixed on world currency markets, rising overseas but mostly declining in domestic trading after the release of a lukewarm report on consumer confidence.

In New York, the dollar closed at 1.523 German marks, unchanged from Monday close. The dollar settled 125.60 Japanese yen, down from 125.80 yen.

Commodities

Oil prices began recovering in after-hours cash trading on news that the U.S. supply of crude showed a huge drop last week.

There was no news moving the market, traders said. Oil had been modestly lower early in the session, stirring nervousness among speculators who had bought futures contracts on the theory that the price would rise.

“A lot of people were saying, ‘Hopefully it will get a little higher and I can get out,’ and that just didn’t happen,” Blakeslee said.

When a rally never came, speculators began bailing out in the afternoon to cut their losses, in a selloff that began snowballing.

But after the futures market had closed, the American Petroleum Institute reported that U.S. supplies of crude oil had fallen 10.3 million barrels, to 330.1 million, for the week ending Friday.

Traders had estimated that the supply of crude would fall no more than 3 million barrels, and some had even predicted that the supply would rise, so they began scurrying to buy oil.

Prices almost instantly moved up by 20 cents to 25 cents a barrel in private cash dealings between oil companies, according to the Telerate Inc. financial reporting service.

Meanwhile, on New York’s Commodity Exchange, August gold dropped 70 cents to $344.40 an ounce; July silver rose 2 cents to $4.028 an ounce.

On other commodity markets, most soybean and grain futures fell, while livestock and meat futures rose ahead of a USDA report on hog supplies.