Bond Yields Slip; Dow Drops 8.38 : Market Overview

Interest rates fell in the credit markets on indications of a slowdown in inflation. The 30-year bond’s yield fell to 7.61% from 7.67% late Monday.

- The stock market settled narrowly mixed in choppy trading despite favorable economic reports.

- Crude oil prices moved to their lowest levels since August in anticipation of an increase in crude oil and distillate stocks.

Credit

The decline came despite a Commerce Department report showing that economic growth increased to an annual rate of 2.7% in the quarter ended Sept. 30. That meant growth nearly doubled the lackluster 1.5% rate in the April-June quarter.

Typically, signs of economic strength drive yields higher, but the report had the opposite impact because part of it showed lower inflation indicators. Inflation erodes the value of fixed-income securities such as bonds.

The long-term bond’s price, which rises when yields fall, gained 21/32 point, or $6.56 per $1,000 in face amount.

Also, the Labor Department reported that American workers’ wages, salaries and benefits rose 3.5% in the year ended Sept. 30, the smallest increase in five years. That was another sign of the dampening effect of the weak economy on inflation.

Furthermore, the report on gross domestic product was viewed as evidence that the economy can grow without extra government spending to stimulate it.

The federal funds rate, the interest on overnight loans between banks, was quoted at 2.938%, down from 3.288% late Monday.

Stocks

The Dow Jones industrial average fell 8.38 points to close at 3,235.73 on Big Board volume of 201.73 million shares, up from 188.12 million in the previous session.

In the broader market, declining issues only slightly outnumbered gaining ones on the New York Stock Exchange.

Stocks opened mixed as traders took profits on the heels of the Dow’s 36-point run-up on Monday. But prices then seesawed for much of the session, driven lower by computer-triggered sell programs and then rising when traders snatched up bargains.

Sharp declines in several stocks that make up the Dow average had a disproportionate hand in lowering the index even though the overall market actually advanced slightly.

Among them, IBM lost 1 3/4 to 65 3/4; General Motors, whose chairman resigned on Monday, fell 1 3/4 to 32 3/8, and Minnesota Mining & Manufacturing was off 1 3/4 to 103.

Third-quarter earnings reports continued to drive the trading of individual issues. Several companies put in better than anticipated performances and enjoyed a spike in their stock prices.

- RJR Nabisco was the most actively traded issue on the Big Board, gaining 1/8 to close at 8 1/4. The food and tobacco giant reported a 48% increase in third-quarter profit even after taking a $70-million charge to downsize its debt.

- Royal Appliance jumped 2 7/8 to 12 7/8, and Tandem gained 2 to close at 13; both companies reported profits that were higher than market expectations.

Among other actively traded issues, Citicorp slipped 1/8 to 16 3/4. The company predicted its operating margin would grow slightly next year, and said it could report gains of about $800 million from asset sales.

Elsewhere, American Express was unchanged at 20 1/2; Disney added 3/4 to 39 3/4; Merck was up 1/8 at 43 1/8, and Philip Morris rose 3/4 to 76 3/8.

Overseas, stocks climbed in Tokyo on a technical rebound, driving the Nikkei 225-share average up 173.93 points to 17,185.26.

In Frankfurt, the 30-share DAX average fell 8.72 points to 1,533.77, while in London, the Financial Times 100-share average gained 8.2 points to close at 2,669.8.

Commodities

On other markets, precious metals fell, grain and soybeans were mixed, coffee gained, and livestock and meat were mixed.

Energy futures traded higher at the opening in buying influenced by Monday’s strong close. But buyers disappeared, and traders reasserted the trend downward.

Crude oil prices moved lower on expectations that the Petroleum Institute numbers, released after the close of trading Tuesday, would show an increase in crude oil and distillate stocks, said analyst Thomas Blakeslee of Pegasus Econometric Group.

The API figures confirmed those higher supplies along with a surprising increase in refinery operations. Unleaded gasoline supplies fell slightly.

December light, sweet crude oil was 25 cents lower at $21.02 a barrel; November heating oil was 0.2 cent lower at 61.65 cents a gallon.

Elsewhere, gold settled $3.70 lower at $337.40 an ounce, and December silver was 0.5 of a cent lower at $3.752 an ounce on New York’s Commodity Exchange.

Currency

The dollar was mixed against major currencies as the greenback took a breather from its upward climb of recent days.

Andrew Hodge, a vice president at Bank Brussels Lambert, said the dollar’s climb was stopped temporarily because “it’s had about all the run it could take.”

In New York, the dollar rose to 122.15 Japanese yen from 121.85 late Monday. The dollar declined to 1.529 German marks, down from 1.531 marks.

Market Roundup, D6