FINANCIAL MARKETS : Rise in Rates Cuts Dow Rally Short : Market Overview

- Stocks closed mixed, retreating from a big early rally as interest rates rose after three days of declines. The Dow industrial average added 6.75 points to 3,298.95, but many broader indexes eased.

- The Treasury’s 30-year bond yield jumped to 7.25% from Monday’s six-year low of 7.19%, as traders began to reconsider the net effect on interest rates as the economy recovers. An auction of two-year T-notes went poorly.

Stocks

IBM Corp., which has held the Dow index back for the past few months, helped drive it higher early in the day after the troubled company said its chief executive will resign.

The Dow, which shot up 35.39 points on Monday largely because of a rally in oil stocks, was up nearly 30 points at its peak Tuesday. Computer-triggered buy programs added to the gains.

But a turnaround in interest rates sparked profit-taking late in the day, and the Dow closed up marginally. The broader Standard & Poor’s 500 index of stocks eased 0.06 point to 439.95.

Advancing issues outnumbered declining ones by about 5 to 4 on the New York Stock Exchange, where volume was heavy at 314.11 million shares.

Some analysts worry that the market overall is beginning to look tired after its long climb since October. Though companies that report improving quarterly earnings are leading the market, the amount of money fighting to get into those select stocks is causing outsized price moves that probably aren’t sustainable, traders warn.

Eugene Peroni, analyst with Janney Montgomery Scott, said the blue chip area of the market isn’t making “real progress. There’s not the confidence to hang onto gains. The interest is to get quick profits.”

Among the market highlights:

- IBM leaped as high as 53 1/4 on news of John F. Akers’ resignation plans, but by the close, the stock was up only 1/8 at 49.

Many of IBM’s competitors continued to advance, however. Compaq shot up 1 7/8 to 56 5/8 after reporting strong quarterly earnings and predicting more strength in personal-computer sales.

Also rising were Intel, up 1 3/4 to 114 3/8; Apple, up 3/4 to 60 3/4, and Dell Computer, up 7/8 to 49 3/8.

- Drug stocks took another bashing after industry leader Merck reported earnings. Though its fourth-quarter profit was up 17%, the company suggested growth this year would be lower--in the 12% to 16% range. The stock tumbled 1 3/4 to 39 1/2.

Also falling were Johnson & Johnson, off 1 3/8 to 43 5/8; Bristol-Myers, off 1 1/8 to 59 3/4; Pfizer, down 1 3/4 to 65 1/8, and Schering-Plough, which dropped 1 5/8 to 57 7/8.

- Stocks up on good quarterly earnings reports included Disney, up 2 3/4 to 46 1/8; BankAmerica, up 2 1/4 to 53 5/8; Northern Telecom, up 3 3/8 to 45 5/8, and Premark, owner of Tupperware, up 5 1/8 to 44.

- On the downside, sports-card maker Topps Cos. plummeted 3 3/4 to 8 1/2 after predicting a fourth-quarter loss on lower trading card shipments. The news caused Marvel Entertainment, which owns Fleer cards, to fall 3 1/4 to 24 7/8.

Overseas, London’s Financial Times 100-share average rocketed 63.8 points, or 2.3% to 2,835.7, after the government’s surprise action that cut interest rates a full point.

The Bank of England dropped its minimum lending rate to 6%, the lowest rate in nearly 15 years.

In Frankfurt, the DAX average ended at 1,576.16, up 6.92 points.

In Tokyo, the Nikkei average rose 205.18 points to 16,492.63.

Credit

Bond traders said the market experienced a “reality check” after long-term rates hit six-year lows on Monday. The rebound in the 30-year Treasury bond yield to 7.25% from 7.19% Monday was accompanied by an across-the-board rise in yields.

Rates have tumbled in recent weeks on optimism that the Clinton Administration can pair a moderately recovering economy with cuts in the federal deficit, allowing rates to fall or stay level.

But “the price levels in the market were not justified” given the recent strength in economic statistics, said Fred Sturm, economist at Fuji Securities in Chicago.

Sturm said Tuesday’s $15.25-billion offering of two-year Treasury notes, which saw a surprisingly low number of bids accepted, was “a taste of things to come.” Investor demand did not materialize as expected, and the average yield on the notes was 4.28%.

Other Markets

Crude oil futures slipped on the New York Merc, with light, sweet crude for March falling 2 cents to $19.64 a barrel. That followed Monday’s gain of 83 cents.

With OPEC now committed to production cutbacks, the market can do little but wait for the cartel’s Feb. 13 meeting.

Near-term gold rose $2.30 to $331.10 an ounce on New York’s Comex. Silver rose 1 cent to $3.70.

In currency markets, the dollar rose against most major currencies, helped by rising U.S. interest rates and the decline in British rates.

In New York, it took $1.538 to buy one British pound versus $1.557 Monday. The dollar also rose to 123.55 yen from 123.45, and to 1.577 German marks from 1.568.

Market Roundup, D6