Bond Yields Plunge on Hint of Cut in Rates : Market Overview

* Bond yields skidded as weak economic data fostered expectations of another interest rate cut by the Federal Reserve.

* Stock prices dipped as investor gloom over the economy outweighed the expected positive benefits of lower rates. The Dow industrials fell 17.29 points to 3,254.37.

* The dollar fell against the Japanese yen but rose against major European currencies as European political figures continued to squabble over the Continent’s currency crisis.

Credit

Yields dropped across the board as investors loaded up on bonds, figuring a Federal Reserve rate cut today or soon is all but certain.

The price of the Treasury’s 30-year bond gained 24/32 point, or $7.50 per $1,000. That sent the yield down to 7.32% from 7.38% Wednesday.

Meanwhile, the yield on three-month T-bills slumped to 2.67% from 2.75% Wednesday.

The buying started immediately after the government reported that the number of Americans filing new claims for unemployment benefits climbed 15,000, to 429,000, in mid-September, the highest level in six weeks. That set a negative tone for today’s report on September unemployment.

“Fed easing, Fed easing, Fed easing. The numbers were so weak you’d think we were heading for a recession,” said Astrid Adolfson, economist at MCM MoneyWatch.

Also contributing to the rally was a National Assn. of Purchasing Management survey showing that the manufacturing sector shrank in September for the first time in eight months.

Even though another Fed rate cut may do little to help an economy where people simply don’t want to borrow, many experts believe the Fed would rather err on the side of easier money at a time when business conditions seem to be worsening.

The federal funds rate, the interest on overnight loans between banks, was 3.75%, down from a technically inflated 5% Wednesday.

Stocks

The jump in jobless claims spooked investors who fear that a weakening economy will dash corporate profits.

The Dow industrial average slipped 0.5%, while the NASDAQ composite index of smaller stocks fell more sharply, off 4.94 points or 0.9% to 578.33.

On the New York Stock Exchange, declining issues topped advancers by more than 10 to 7, as volume came to 203.67 million shares, up from 184.22 million Wednesday.

Whether stocks will get any lift today if the Fed cuts rates, as expected, isn’t clear, analysts say.

Some noted that traders were uneasy Thursday afternoon, awaiting the late afternoon press conference at which Ross Perot formally re-entered the race for President. If Perot’s re-entry is viewed as adding more uncertainty, sellers could dominate today.

Among market highlights:

* Industrial stocks gave ground on new worries about the economy. Alcoa lost 3/4 to 65 1/2, International Paper slid 1 3/4 to 62 1/8, 3M Co. sank 1 5/8 to 100 7/8, Ford tumbled 1 1/4 to 38 1/4 and GM lost 1/2 to 31 5/8.

* Technology shares lost ground, also on economy fears. Intel dropped 2 to 63 3/4, Hewlett-Packard sank 2 1/2 to 53 1/4, Sun Microsystems plummeted 2 3/4 to 28 1/2 and Digital Equipment gave up 2 7/8 to 36 5/8.

* Insurance stocks continued to be a bright spot, on expectations of an upturn in insurance rates. General Re rose 2 5/8 to 106 1/2, National Re climbed 1 5/8 to 25 7/8, Cigna rose 2 1/2 to 52 1/2 and St. Paul jumped 1 7/8 to 77 7/8.

* Surgical-center operator Medical Care America led the active list, down 3 7/8 to 20 3/8. The company, whose stock plunged 33 points in a single session last week, said it has been named in a shareholder suit alleging that it made misleading statements about its revenue and earnings prospects.

Meanwhile, T2 Medical, a home infusion therapy business, fell 2 1/8 to 20 1/8. T2 said it will allow early release from restricted status of some shares owned by physician stockholders--which could lead to selling.

* Among Southland issues, Glenfed tumbled almost 50%, losing 1 to 1 3/8. The savings and loan holding company denied reports that it may file for bankruptcy protection while it seeks to work out financial problems.

Also, House of Fabrics slumped 1 5/8 to 10 3/8, though the Sherman Oaks-based fabric retailer said it knew of no reason for the drop.

Overseas, Tokyo’s Nikkei average eased 29.17 points to 17,369.91.

London prices advanced on hopes that interest rates will fall further. The 100-share Financial Times index jumped 19.3 points to 2,572.3.

German shares surged on market talk that the Bundesbank might cut interest rates. Frankfurt’s DAX index rose 17.67 points to 1,484.03.

Currency

European currency traders were watching Britain’s handling of its currency crisis on a day when the chancellor of the Exchequer, Norman Lamont, rejected calls for his resignation.

Newspapers that normally support the ruling Conservatives joined opposition Labor Party leaders in blaming Lamont for a row with Germany over the recent collapse of the British pound--and demanding that Lamont quit.

The dollar benefited from the spat. The pound fell in New York to $1.738 from $1.789 Wednesday. The dollar also rose to 1.421 German marks from 1.410. But it fell to 119.80 Japanese yen from 119.85.

The dispute between Britain and Germany, inflamed by a leaked document from the central Bundesbank rejecting blame for the collapse of the pound, threatened to undermine Prime Minister John Major’s diplomatic offensive to rescue the Maastricht treaty on European monetary and economic union. The document detailed Bundesbank efforts to support the pound and Italian lira, to the tune of $30 billion.

The British Treasury angrily charged that, although the document had been confidential, “without warning, the German Embassy . . . made available an almost complete version of the paper” to the press.

Commodities

Hog prices climbed on the Chicago Mercantile Exchange on speculation that demand for pork will absorb an expected increase in production.

October hogs gained 0.45 cent to 42.775 cents a pound after the Agriculture Department reported that, as of Sept. 1, the number of market-ready hogs was up 6% over a year ago.

Meanwhile, soybean, corn and oat futures prices tumbled on the Chicago Board of Trade on forecasts of good harvesting weather, which will boost crop sizes.

Light, sweet crude oil for delivery in November settled at $21.83 a barrel, up 12 cents, on the New York Merc.

Gold fell 30 cents to $347.50 an ounce on the New York Comex. Silver slipped to $3.714 an ounce from $3.739.