Airline Stocks Plunge, Sending Dow Down 27 : Market Overview

Blue chip stocks fell sharply after being caught in the downswing of airline issues and major setbacks in some other stocks. The Dow Jones average fell 27.29 points to close at 3,205.74.

Long-term Treasury bond yields edged downward as traders reacted to several government reports that seemed to indicate the economy is poking its way out of its malaise.

Stocks

Airline shares slid after First Boston Corp. lowered its 1993 earnings estimates for AMR Corp., UAL Corp. and Delta Air Lines.

Secondary stocks, the recent market leaders, also succumbed to the selling.

The Dow Jones transportation index lost 27.80 points to close at 1,350.90.

In the broader market, declining issues outnumbered advances by about 3 to 2 on the New York Stock Exchange. Big Board volume retreated to 175.31 million shares, down from 192.95 million on Friday.

John Blair, head trader at County NatWest, said the losses reflected “a combination of transports being down a lot” and major setbacks in stocks such as electronic parts maker AMP Inc., which lost more than 9 points before closing at 57, down 7 7/8 on the day.

AMP shares tumbled after the company said its fourth-quarter results would be lower than expected and that full-year profits will be “several cents less” than analysts’ estimates of $2.85 a share.

The NASDAQ index, which gained in four out of last week’s five sessions, lost 3.15 points to end at 634.01.

“Small-cap stocks went from being fairly reasonable to oversold to being overbought,” said Mark Tincher at Chase Global Private Bank.

Among the market highlights:

* Oracle Systems lost 1 1/2 to 21 3/4 after Dean Witter cut its rating to neutral from buy on the maker of computer software.

* First Boston cut its ratings on AMR, UAL, Southwest Airlines and British Airways to hold from buy and cut its Delta estimates. AMR lost 2 to 63 1/4, UAL fell 5 1/8 to 118 3/4, Southwest Airlines fell 7/8 to 25 1/4, Delta lost 3 3/4 to 53 1/4, and British Air sank 2 1/2 to 40 5/8.

* Fruehauf Trailer Corp. fell 1/2 to 5 1/2. The company reported a $19.44-million loss for the third quarter, most of which was attributed to restructuring costs.

* Blockbuster Entertainment climbed 3/4 to 17. The company said it formed a joint venture with Virgin Retail Group to operate entertainment stores in Europe and Australia and to develop a chain of outlets in the United States as well.

* Sellers blunted the recent advance in technology stocks traded in the NASDAQ market. Intel dropped 1 1/4 to 68 3/4; Oracle Systems 1 1/2 to 21 3/4, and Borland International 1 1/4 to 28 3/4.

Overseas, London’s Financial Times 100-share average closed down 17.9 at 2,679.6. Tokyo’s 225-share Nikkei index finished down 167.80 points, or 1.03%, to 16,162.99. Frankfurt’s 30-share DAX average ended down 1.57 points to close at 1,546.95.

Credit

The Treasury’s 30-year bond yields dipped to 7.56% from 7.57% late Friday, while its price, which moves in the opposite direction from yield, rose 1/8 point, or about $1.25 per $1,000 in face amount.

The government reported industrial production rose 0.3% in October after slumping much of the summer and that business sales perked up in September.

The trend started Friday when, among other things, U.S. government figures showed growth in the nation’s money supply.

A separate and equally favorable report showed sales perked up in September and the backlog of unsold inventories was unchanged.

“The bond market doesn’t like good economic news and it doesn’t like Democratic presidents,” said Marshall B. Front, an economist at the Chicago investment and mutual fund management firm of Stein Roe & Farnham.

Positive economic news generally is bad for bonds because it reduces the likelihood that the Federal Reserve will cut interest rates to stimulate economic growth, which would boost the value of bonds.

The federal funds rate, the interest on overnight loans between banks, was quoted at 3.25%, up from 2.813% late Friday.

Currency

The dollar resumed its rally, rising on the heels of fresh reports pointing toward a reviving U.S. economy.

Analysts said the dollar’s advance began late Friday after the government reported the nation’s money supply expanded in the recent week. An increase in money supply tends to portend a strengthening economy.

Dollar-buying continued overnight in foreign markets and carried through when trading shifted to the United States on Monday.

The U.S. currency was supported by the industrial production and inventories reports.

The dollar settled in New York at 124.70 Japanese yen, up from 124.05 yen on Friday. The U.S currency closed at 1.592 German marks up from Friday’s 1.573 marks. The British pound fell to $1.525 from Friday’s $1.551.

Commodities

Oil futures prices snapped back, erasing last week’s losses in a rally prompted in part by expectations that colder weather will raise heating oil demand.

On other commodity markets, coffee futures continued their advance; grains and soybeans gained; livestock and meat futures rose, and precious metals were mixed.

In trading on the New York Mercantile Exchange, light, sweet crude oil for December delivery rose 29 cents to $20.37 a barrel; December heating oil surged 1.07 cents to 58.90 cents a gallon; December unleaded gasoline jumped 1.25 cents to 54.86 cents a gallon, and December natural gas fell 1.2 cents to $2.411 per 1,000 cubic feet.

“We’re beginning to see renewed interest in heating oil as we approach this colder weather,” said Gerald Samuels, managing director in Los Angeles of ARB Oil Inc., a New York-based energy trading company.

Meanwhile, gold fell $1.40 to $333.90 an ounce, and December silver rose 0.2 cent to $3.752 an ounce.

Market Roundup, D8