Dow, Battered by Uncertainty, Drops 37.55 : Market Overview

* Blue chip stocks closed sharply lower as investors dumped health care stocks and concerns mounted over the uncertain course of the presidential campaign. The Dow Jones average closed down 37.55 points to 3,250.32.

* Treasury bond yields dropped as new data reflected extended weakness in the economy. The yields on the Treasury’s main 30-year bond tumbled to 7.36% from 7.41% late Thursday.

* The dollar closed mostly lower in quiet foreign exchange trading as the market appeared to ignore two unfavorable reports on the U.S. economy.

Stocks

The stock market was hit by the bout of bad economic news showing that the recovery has all but stalled.

Declining issues outnumbered advances by more than 9 to 5 on the New York Stock Exchange. Big Board volume came to an estimated 213.67 million shares, up from 187.96 million in the previous session.

The Dow lost 76.73 points for the week.

With Democratic candidate Bill Clinton still riding high in the polls, investors were especially sensitive to his health care proposal that includes rigorous cost controls on prescription drugs and medical procedures.

“We’re going to get a lot of health care proposals and they are going to bring drug prices down as well as (profit) margins,” said Rama Krishna, chief investment strategist at First Boston Corp.

A steep drop in Medical Care America’s stock, after it forecast a break-even third quarter because of merger costs, further weighed on the sector.

Stock in the Dallas-based outpatient surgical company plunged 33 to 25 in heavy NYSE trading.

“It seems clear that what happened to Medical Care let loose a logjam on the whole health care group,” said Steve Poling, an executive vice president at Fortis Advisers.

Add the uncertainties of the presidential election, and the conditions were set for a full-blown selloff. The immediate trigger came from billionaire Ross Perot, who is mulling re-entering the race, a top aide said.

The government also presented figures showing that the economic recovery is in a virtual state of suspension.

The Commerce Department reported that orders for durable goods fell for a second straight month in August, down 0.1% after a 2.7% drop in July.

The devastation wreaked by Hurricane Andrew also dragged American personal incomes down at the sharpest pace in more than 18 months during August.

Also, the National Assn. of Realtors said sales of previously owned homes fell 3.2% in August. Despite the lowest mortgage rates in 19 years, sales slumped in every region except the West.

“These are not the numbers a recovery is made of,” said Brian Jones, an economist at Salomon Bros. in New York. “The economy is almost comatose. It’s breathing, but it’s not going anywhere.”

* Among the pharmaceutical stocks, Merck & Co. dropped 1 7/8 to 43 3/4, Pfizer lost 4 1/8 to 74 5/8, Bristol Myers slipped 2 1/8 to 63 3/4, Baxter International lost 2 to 32 1/2, Alza slumped 2 5/8 to 42 3/8, and Warner Lambert lost 3 1/8 to 62 3/8.

* Elsewhere, United Health lost 3 7/8 to 47 7/8, U.S. Healthcare fell 3 3/4 to 64 1/4, Quantum Health fell 6 1/4 to 20 1/4, T2 Medical lost 2 5/8 to 21 7/8, and Option Care lost 3/4 to 7 1/2.

* Insurers continued to rally on hopes that the cycle for property-casualty companies--hit hard by the hurricane--will turn. St. Paul Cos. rose 1 1/4 to 73 1/4. American International gained 5/8 to 102 1/4. Dean Witter upgraded its ratings on the companies.

* General Motors Corp. was hit by its second strike in a month when 4,200 workers at a plant in Lansing, Mich., walked off the job. GM lost 1 1/8 to 32, Ford fell 1 5/8 to 38 3/4, and Chrysler fell 1 3/8 to 21 1/2.

In overseas trading, European Monetary System uncertainty continued to weigh on the Frankfurt bourse. The 30-share DAX average ended 17.58 points lower at 1,513.36.

Share prices also fell on the London stock exchange, with the Financial Times 100-share average closing 20.2 points down to 2,601.0.

Tokyo stocks closed near their day’s lows in dull trading with the 225-share Nikkei average closing down 215.19 points to 18,394.76.

Credit

The price of the Treasury’s main 30-year bond, which rises when yields fall, rose 21/32 point, or $6.56 per $1,000 in face amount.

The gains came on the three economic reports that turned traders’ sights away from the European currency crisis--which has preoccupied the market for weeks--and back to the U.S. economy.

A weak economy increases the chances that the Federal Reserve will lower interest rates, which would increase bond prices.

Also helping the bond market was a belief that next week’s report on September employment would be weak. The employment report is considered one of the most significant economic indicators, and economists believe that a weak report could force the Federal Reserve to lower interest rates again.

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

Currency

The currency market had little reaction to the economic reports.

Analysts said traders appeared to be selling German marks ahead of the weekend, out of concern that the unsettled European currency markets could see new disruptions. Rumors continued that Germany’s central bank would lower interest rates again to help diffuse the situation.

The dollar fell to 1.480 German marks, from 1.485, in New York trading. The dollar was quoted at 120.75 Japanese yen, up from 120.55 yen late Thursday. The British pound was quoted at $1.7150, more expensive than $1.7060 late Thursday.

Commodities

Natural gas futures prices ended modestly higher on the New York Mercantile Exchange in a day of seesaw trading that marked the end of a wild week.

On other commodity markets, oil futures ended lower; grains and soybean were mostly higher; precious metals were mixed, and livestock and meat futures were mostly higher.

Natural gas for delivery in November rose 1 cent to $2.474 per 1,000 cubic feet.

It was the smallest move this week in the natural gas market, which is riddled with uncertainty about how long it will take the industry to fully recover after Hurricane Andrew temporarily knocked out 5% of the nation’s supply about five weeks ago.

In oil trading, light, sweet crude for November delivery fell 11 cents to $21.68 a barrel.

On New York’s Commodity Exchange, gold for October delivery rose 10 cents to $349.30 an ounce, and September silver slipped 1.5 cents to $3.799 an ounce.