Computer Trading Triggers Tailspin, Rebound : Market Overview

* Blue chip stocks were whipped in both directions by computer trading Tuesday, but when the session came to a close, the market was mixed with the Dow up slightly and smaller stocks lower.

* Interest rates edged higher, while oil prices plummeted to 10-month lows on oversupply concerns, despite the war-like rhetoric between the United States and Iraq.

Stocks

Prices opened mixed and seemed to hold until about midday, when a wave of computer-triggered sell programs sent stocks tumbling.

The Dow Jones industrials were off more than 20 points late in the day before a round of computer-generated buy programs kicked in, helping the market stage an impressive rebound.

At the close, the Dow was up 1.89 points to 3,264.64. The NASDAQ market failed to recover as quickly, and the NASDAQ composite index ended down 2.95 points to 679.45.

Advancing and declining issues were about even on the New York Stock Exchange, where volume was 239.41 million shares, up from 217.91 million Monday.

Richard Hoey, economist at Dreyfus Corp., traced the start of the market’s latest turmoil to late last week, when “(President-elect) Clinton’s people began backing away from his promise of halving the budget deficit.” The Dow lost nearly 50 points last week.

Traders also said the market was troubled by events in the Middle East, where Iraq’s fresh incursions into disputed Kuwaiti territory heightened tensions.

In addition, early fourth-quarter corporate earnings reports were mixed. Many investors have been hoping to see decent numbers, to justify the optimism about the economy that was built into many stocks’ prices.

Among the market highlights:

* Eastman Kodak again helped support the Dow. The stock gained 2 5/8 to 47 5/8 after soaring 3 1/4 on Monday. The company hired a new chief financial officer who has a reputation as a cost-cutter.

* Auto issues were pressured by Chrysler’s plan to issue 40 million new shares. Investors worry that the supply will take momentum away from the stocks. Chrysler fell 1 5/8 to 34 5/8, GM was unchanged at 34 1/4, and Ford slipped 1/8 to 45.

* Some industrial issues were rattled by pricing worries. Copper giant Phelps Dodge dropped 1 3/8 to 48 1/8 after it cut copper prices 5 cents a pound, to $1.03.

Also, Alcoa lost 1 1/8 to 69 3/4 after it reported fourth-quarter operating earnings of 57 cents a share. Though up from 30 cents a year ago, Wall Street had estimated Alcoa would earn 74 cents a share.

* On the positive side, International Paper added 1/8 to 63 1/8, despite reporting fourth-quarter operating earnings 19% below year-ago results.

* Computer disk-drive makers sank after Maxtor Corp. reported disappointing earnings, which it attributed to pricing pressures. Also, after the market closed, rival Seagate Technology reported earnings above expectations, but it too mentioned pricing pressures.

Maxtor tumbled 2 5/8 to 11 3/4, Seagate dropped 1 5/8 to 19 7/8, Conner Peripherals lost 1 5/8 to 21 3/4, and Western Digital sank 1 1/4 to 8 1/4.

* Other techs were mixed. Apple dropped 2 5/8 to 61 1/2, Dell lost 1 1/8 to 45 1/4, and Texas Instruments slid 2 1/8 to 54 1/2, but Cisco Systems added 5/8 to 83 7/8, and BMC Software rose 1 1/4 to 80 1/8.

* Among other major companies reporting quarterly earnings: Banking giant Mellon soared 2 7/8 to 54 7/8 on its healthy report, while Federal National Mortgage eased 1/4 to 77 1/4, despite reporting fourth-quarter earnings up 18%.

* Airlines gave ground again as private Northwest Air Lines launched a new fare war. AMR, parent of American Airlines, was off 1 5/8 to 67 3/4, while United’s parent, UAL, slid 2 3/8 to 129 1/2, and Delta was off 3/4 to 50 7/8.

* Among restaurant stocks, Sonic tumbled 1 7/8 to 26. A group led by restaurateur Jamie Coulter said it would sell its Sonic holdings to concentrate instead on its investment in Lone Star Steakhouses. Lone Star rose 3/4 to 35 1/4.

Overseas, profit taking in London pushed the Financial Times 100-share average down 15.5 points to 2,757.9.

In Frankfurt, the DAX average eased 1.77 points to 1,530.19.

Tokyo stocks closed on a strong note, with the Nikkei average rising 91.50 points to 16,681.05.

Credit

Interest rates rose moderately, with the yield on the Treasury’s 30-year bond closing at 7.47%, up from 7.44% Monday.

Analysts said another day of heavy new issuance in the corporate bond market continued to affect yields on Treasury bonds.

Underwriters of corporate bonds generally buy Treasury bonds of comparable maturity as a hedging strategy to guard against an unfavorable market reception for the corporate issues. They then sell the government bonds after the corporate issues have been digested by the market. That selling has been pushing Treasury yields up lately.

Also, some traders are nervous about President-elect Clinton’s seemingly on-again, off-again position on reducing the massive federal budget deficit.

The federal funds rate--the interest on overnight loans between banks--fell to 2.81%, down from 3.06% late Monday.

Commodities

Oil prices fell again as the petroleum markets continued to ignore the tension between the United States and Iraq and focused on the oversupply of crude.

Light, sweet crude oil for delivery in February settled at $18.38 per barrel, down 40 cents, on the New York Mercantile Exchange. That is the lowest since March 2, when it reached $18.34.

After trading ended for the day Tuesday, the American Petroleum Institute’s weekly inventory figures had more news of plentiful supply: The API report showed a small drop in crude inventories last week, while stocks of distillates--which include home heating oil and unleaded gasoline inventories--rose sharply.

Elsewhere, in precious metal trading on the Commodity Exchange in New York, gold rose $1 to $328.50 an ounce, and March silver rose 3 cents to $3.70.

Currency

The dollar turned in a mixed performance against major foreign currencies on world markets, in the absence of any news to give it direction.

By the finish of the trading session in New York, the dollar stood at 125.20 Japanese yen after settling at 125.15 yen late Monday.

The dollar also was at 1.631 German marks, unchanged from Monday.