FINANCIAL MARKETS : Blue Chip IBM a Sickly Green; Stocks Retreat

Market Overview

* A sharp selloff of International Business Machines Corp. pushed blue chip stock prices lower.

* Treasury bond yields snapped a two-day rise, falling on news of weakness in early December retail sales that suggested the economic recovery might not be as robust as earlier thought.

* The dollar settled mixed in thin trading on world currency markets.

Credit

The Dow Jones average, which would have finished on the plus side if not for IBM, fell 7.84 to 3,284.36 on New York Stock Exchange volume of 227.77 million shares. Monday’s volume totaled 187.04 million.

In the broader market, declining issues outnumbered advancers by about 8 to 7 on the Big Board.

IBM, a component of the Dow 30-stock index, lost 6 3/4 to end at a new 52-week low of 56 1/8 and at less than half of the 139 3/4 level reached early last year. More than 12 million shares of the giant computer maker changed hands.

IBM said it was unsure whether it could maintain its annual dividend of $4.84. It also announced a $6-billion, fourth-quarter charge and further layoffs of 25,000 people.

Some analysts said the steep fall in IBM had a modest impact on the blue chip complex, and they sensed that the market was perhaps more influenced by profit taking and other corporate news.

But the setback in IBM hurt other technology stocks.

“IBM still has the aura of being the premier technology company,” said Arnie Owen, managing director of trading at Soundview Financial Group. He added, however, that IBM’s woes were not shared by other technology companies.

Traders said the market was also consolidating in preparation for another upturn.

“The market has been consolidating for a few days, but I say the bias is still up,” said Robert Caputo, director of research at Swiss Bank Corp. Investment Banking Inc.

“The economic background is improving, interest rates are improving. I think we’re in pretty good shape until the end of the year,” he added.

Analysts said traditional year-end tax-related selling contributed to the market’s decline.

“People are taking their profits because of (the expectation of higher) taxes. There’s the assumption Clinton will raise income taxes,” one fund manager said.

The NASDAQ index lost 3.98 points to end at 650.75 on further profit taking after a recent rally that took it to record highs. Three of the NASDAQ’s top 10 most active stocks were initial public offerings.

* Snapple Beverage Corp. was at 29, up from its issue price of 20, and Purolator Products Corp. closed at 15, unchanged from its initial pricing of 15. Vision Sciences ended at 12, compared to its initial price of 9.

* Also on the NASDAQ, Vans Inc. fell 2 1/4 to 10 1/4. Montgomery Securities analyst Alice A. Ruth downgraded her investment rating on the Orange County-based footwear company’s stock to hold from buy.

* Wet Seal shed 1 1/4 to 7 1/4 after First Boston trimmed an investment rating to hold. It had rated shares of the Irvine women’s clothing retailer buy.

* Zeos International added 5/8 to 4 1/8. It entered a $12.5-million revolving credit facility with a unit of Corestates Financial.

Several companies that reported disappointing earnings or issued forecast warnings found their stocks also drawing heavy selling.

* Gerber Products slumped 5 1/4 to 29 7/8. The company said it sees lower per share earnings for the current fiscal year.

* Topps Co., the baseball card and bubble gum maker, lost 3 to 12 after reporting disappointing earnings.

* Among technology stocks, Apple Computer dipped 7/8 to 56 3/8, Microsoft dropped 3/4 to 86 3/8, and Novell fell 3/4 to 26 3/4.

Overseas, stocks staged a late rebound in Tokyo, with the 225-share Nikkei average closing up 190.77 points, or 1.10%, to 17,480.74. Frankfurt’s 30-share DAX average closed up 11.49 points to 1,481.24, and London’s Financial Times 100-share average ended 3.9 points lower at 2,717.9.

Credit

The Treasury’s benchmark 30-year bond’s yield dropped to 7.44% from 7.46% Monday. Its price, which rises when yields fall, rose 3/16 point, or $1.875 per $1,000 in face amount.

Credit market strategists said the bond market rallied on a retailing report from Johnson Redbook, a trade publication, that showed average sales fell 5% in the first two weeks of December.

Others said there was no clear reason for the market rally. Kevin Flanagan, a money market economist for Dean Witter Reynolds Inc. in New York, said the Johnson Redbook report may have played a role, but he had noticed that bond prices have strengthened every Tuesday since Election Day.

“We’ve witnessed an interesting phenomenon on Tuesdays,” he said. “I’m not saying it’s because of the way the moon falls or what.”

Although much of the weakness stemmed from severe weather in the Northeast and Northwest last week, the drop came as a surprise in light of other economic statistics that have pointed to a modest economic rebound.

The federal funds rate, the interest on overnight loans between banks, was quoted at 3.063%, up from 3% late Monday.

Currency

Analysts said currency trading was particularly quiet. “This market’s on holiday already,” said Randolph Donney, research director at Pegasus Econometric Group in Hoboken, N.J.

Much of the day’s activity focused on the French franc, which continued to decline overseas. Both the German and French central banks stepped in, buying francs while selling German marks to prop up the French currency, Donney said.

The German mark’s strength has been putting pressure on some of the weaker European currencies for some time, and now that pressure has come to rest on the franc. The Bundesbank’s strategy of keeping interest rates relatively high has ensured the mark’s dominance on the foreign exchange scene.

The intervention apparently was successful; the franc closed higher in U.S. markets.

In New York, the U.S. greenback settled at 1.569 German marks, down from Monday’s 1.570. The dollar rose to 123.95 Japanese yen, up from 123.68 yen. The British pound rose to $1.568 from the previous session’s $1.567.

Commodities

Wheat futures prices fell moderately on the Chicago Board of Trade amid dimming export prospects and perceptions that the winter wheat crop is off to a good start.

Other grain futures ended narrowly mixed; soybeans edged lower.

On other commodity markets, livestock and meat futures were mixed; energy futures were mixed, and precious metals fell slightly.

Wheat for December delivery fell 3.25 cents to settle at $3.71 a bushel; December corn rose 0.50 cent to $2.133 a bushel; December oats ended unchanged at $1.468 a bushel; January soybeans fell 0.75 cent to $5.708 a bushel.

Meanwhile, crude oil futures prices fell 14 cents to $18.95 a barrel on the New York Mercantile Exchange.

Gold fell 10 cents to $334.50 an ounce. December silver fell 1.3 cents to $3.691 an ounce on New York’s Commodity Exchange.

Market Roundup, D6