Dow Pauses for Breath, Declines 1.34 : Market Overview

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

* Stocks closed out the second quarter mixed, as blue chips slipped while smaller stocks continued Monday’s advance. The Dow Jones industrial average eased 1.34 points to 3,318.52.

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

Stocks

Blue chip shares drifted for most of the day as nervous investors pulled back after Monday’s surprise 37.45-point Dow rally.

Stocks’ gains Monday were partly based on expectations that the Federal Reserve will lower interest rates again soon, to stimulate the sluggish economy.

The Fed’s policy-making committee met Tuesday and continues that meeting today.

But with no certainty that the Fed will act, many investors took to the sidelines Tuesday.

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

Data released Tuesday offered new confirmation that the economy remains slow-growing at best. The index of leading economic indicators rose just 0.6% in May.

Even so, there were signs that investors were more willing to give the economy the benefit of the doubt. The NASDAQ composite index gained 4.80 points to 563.60, a 0.9% rise after Monday’s 2% surge.

And winning stocks topped losers 2 to 1 on the NASDAQ market, versus an 11-8 ratio on the New York Stock Exchange.

Also, NYSE volume grew to 200.98 million shares from 176.75 million Monday.

The end of the second quarter was welcomed by many investors who saw their stocks hammered in the spring and in recent weeks. For the quarter, the Dow gained 2.6%, indicating continuing strength in blue chips. But the NASDAQ index--representing 4,000 smaller stocks--lost 6.7% in the quarter as investors took profits.

Stocks of California-based companies fell even more, on average: An index of 250 California stocks compiled by Franklin Resources plunged 9.3% for the quarter, a reflection of the gloom surrounding the Golden State’s economy.

Among Tuesday’s highlights:

* Many financial services stocks added to recent gains. Lower interest rates would be bullish for the industry by spurring borrowing.

Student Loan Marketing jumped 2 3/8 to 68 1/2, bond insurer MBIA jumped 2 3/8 to 54 1/8, insurer St. Paul Cos. gained 2 5/8 to 80 1/8, and mortgage banker Countrywide Credit added 1 1/2 to 34 3/4.

* Technology stocks continued their rebound, though gains were more limited than in Monday’s rally. Apple Computer rose 1 1/4 to 48, Exabyte gained 2 1/2 to 31 7/8, Micropolis added 5/8 to 8 5/8, and Xircom jumped 1 1/2 to 8 3/4.

* Industrial stocks adding to Monday’s rally included Caterpillar, up 7/8 to 53 3/4; Illinois Tool Works, up 1 3/4 to 60 7/8, and Alcoa, up 1 to 75 7/8.

* Among smaller Southland issues, bargain-hunting lifted such stocks as Day Runner, up 1 to 11 1/2; athletic shoe maker K Swiss, up 1 to 18 3/4; retail services firm Catalina Marketing, up 1 5/8 to 28, and personal-care products firm DEP Corp., up 3/4 to 12 1/4.

* Oil stocks were broadly lower as oil prices slumped. Arco lost 2 3/8 to 107 3/4, Chevron sank 1 1/4 to 67, and Phillips gave up 3/4 to 24 1/4.

* Some previously announced takeover deals went awry. Ohio-based Star Banc plunged 5 1/2 to 32 after Fifth Third Bancorp withdrew its purchase offer.

Also, food wholesaler Wetterau slumped 4 5/8 to 26 after suitor Super Valu said it would revise downward its merger offer. After the market closed, Super Valu offered to pay the same basic amount in cash ($30.25 a share) but it eliminated plans to spin off Wetterau’s Shop N’ Save unit.

* Among other losers, Crawford Co., an insurance claim service, plummeted 7 1/8 to 19 3/4 on poor earnings projections.

Overseas, share prices rebounded in Tokyo from a six-year low in light trading, with the Nikkei average gaining 210.46 points to 15,951.73.

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

Commodities

Oil futures plunged in a puzzling selloff, but in after-hours dealings late Tuesday prices rebounded.

While futures markets were in business, light, sweet crude oil for August fell 64 cents a barrel, to $21.60, on the New York Merc.

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,” one trader said.

When a rally never came, speculators began bailing out.

But after the futures market 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. So they began scurrying to buy oil again.

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. news service.

Meanwhile, on New York’s Comex, August gold dropped 70 cents to $344.40 an ounce; July silver rose 2 cents to $4.03 an ounce.

Credit

Interest rates were little changed in light trading.

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

Traders said many investors are waiting for Thursday’s government report on June employment.

That report is considered a key piece of evidence for the Federal Reserve in deciding whether to lower interest rates again.

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.

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

Second-Quarter Market Roundup

How key stock indexes fared in the second quarter ended Tuesday, and their performance year to date:

Tues. Percentage change: Index close 2nd Qtr. Year to date Dow utilities 211.13 +2.7% -6.6% Dow industrials 3,318.52 +2.6% +4.7% S&P; 500 408.14 +1.1% -2.1% NYSE composite 224.33 +0.5% -2.2% S&P; mid-cap 139.38 -3.9% -4.9% Amex market value 379.28 -4.0% -4.0% Dow transports 1,315.77 -4.9% -3.1% NASDAQ composite 563.60 -6.7% -3.9% California 250* 342.39 -9.3% -7.6%

* Compiled by Franklin Resources