Stocks, Bonds Take a Hit; Dow Drops 29 Points : Investors Fret Over Inflation Numbers and Political Turmoil in Russia

Stocks and bonds took a drubbing Friday, hit by higher than expected wholesale inflation for February and concern over political problems in Russia.

A late bout of buying helped shore up blue chips, but the Dow Jones industrial average still lost 29.18 points to close at 3,427.82. The Dow had been off more than 50 points earlier in the day.

In the broader market, declining shares outpaced advances 1,377 to 549 on moderate New York Stock Exchange volume of 244.7 million shares.

For the week, the Dow gained 23.24 points.

Analysts said the market got an early jolt from Moscow, where Russian lawmakers bluntly rejected President Boris N. Yeltsin’s attempts at a power-sharing deal. Investors were also surprised by a report that wholesale prices rose a sharp 0.4% overall last month.

“That combination was kind of a one-two knockout punch for the market today,” said Hugh Johnson, chief investment officer at First Albany Corp. Analysts said Yeltsin’s battle with his conservative political rivals could mean President Clinton will have to focus more on international concerns at a key time for his domestic economic program.

The events in Russia also weighed heavily on European stock markets.

Stocks “fell out of bed early in the morning and basically stayed that way,” said Kenneth Ducey, director of trading at B. T. Brokerage.

Analysts said the decline was not surprising after several weeks of strong performance by the market, capped by three straight record closing highs in a streak broken by a loss Thursday.

Don Hays, director of investment strategy at Wheat First Securities, said stocks had been due for a correction after their heady gains. “I think it’s a normal, natural type of correction and we’re delighted that it’s occurring,” he said.

First Albany’s Johnson, however, said he found it “troubling” how the bond market reversed its recent optimism.

He said the Dow could fall 250 points in a major correction.

In the bond market, the yield on the inflation-sensitive 30-year Treasury bond soared to 6.86% from 6.76%, pushing its price down 19/32, or nearly $13 per $1,000 face amount.

Shorter-term bonds fared better as concern about the turmoil in Russia led some investors to seek safety in short, liquid Treasuries.

Inflation erodes the value of securities that pay a fixed return, such as bonds. Analysts said the inflation news was used an excuse to sell bonds after a rally dating to the beginning of the year pushed the yield on 30-year bonds below 6.70%.

Analysts said the surge, fueled by optimism that President Clinton would cut the deficit, had to end sometime.

“The market sold off hard today, which was somewhat related to the disappointing (inflation) number,” said Jack McIntyre, a fixed-income analyst with Technical Data in Boston. “But it was clearly the market moving in a corrective mode.”

In the secondary market for Treasury securities, short-term maturities fell 4/32 point to 14/32 point and intermediate maturities declined 22/32 point to 28/32 point, the Telerate Inc. financial information service reported.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The federal funds rate, the interest on overnight loans between banks, was quoted at 2.938%, down from 3% late Thursday.

Among individual stocks:

* Primerica Corp gained 1 1/2 to 49 1/4 after it said it would pay American Express about $1 billion for the domestic retail brokerage and asset management businesses of its Shearson Lehman Bros. subsidiary. American Express rose 5/8 to 28.

* General Motors slipped 3/8 to 38 3/8. GM’s chief purchasing manager, Jose Ignacio Lopez de Arriotua, left the company to join Volkswagen.

* Biomet Inc. fell 1 3/4 to 11 3/8. The health products company reported quarterly earnings below some analysts’ expectations.

* Artisoft lost 1 1/8 to 8. The software maker said it expected to break even or possibly post a slight loss for the quarter.

* Interest-sensitive stocks were hit hard by the rise in rates. Federal Home Loan Mortgage Corp. fell 1 1/2 to 47 3/4. Federal National Mortgage Assn. declined 3/4 to 82.

* Most gold stocks gained. Gold is generally seen as a hedge against inflation. Homestake Mining rose 5/8 to 12 1/2, and Newmont Gold advanced 3/4 to 35.

* But American Barrick, a gold production company, fell 1 to 16 in heavy trading after Interior Secretary Bruce Babbit said the company might have trouble getting title to the land where it operates its Nevada Goldstrike mine.

* Albertson’s fell 1 5/8 to 52 in active trading. The supermarket company said Thursday that it was offering 5 million common shares at $52.50 each.

* Casino stocks rose. Showboat Inc. was up 3 7/8 at 20 3/4 after getting the go-ahead for a riverboat casino in New Orleans.

* Circus-Circus was up 2 3/4 at 49 after Morgan Stanley upgraded it, citing a brighter outlook for gambling stocks.

In overseas trading, London stocks dropped sharply. The Financial Times 100-share average fell 37.5 points to 2,915.9.

Frankfurt’s 30-share DAX average slipped 10.26 points to 1,707.14.

But stocks ended firmer in Tokyo, with the 225-share Nikkei average rising 132.73 points to close at 18,037.52.

Currency

The dollar settled mostly higher in relatively subdued trading despite the turbulence in the credit and stock markets.

The dollar gained in Europe as buyers sought a safe haven from the mounting political instability in Russia.

“The dollar was remarkably stable considering these developments,” said Michael Malpede, an analyst with Refco Group Ltd. in Chicago.

He said the situation in Russia likely will delay long-awaited interest rates cuts in Europe, particularly in Germany, which has heavy exposure to Russian debt.

“That may limit short-term dollar demand that was based on speculation that rates would be coming down overseas,” Malpede said.

Higher interest rates overseas make foreign yields more attractive than those of dollar-denominated securities.

In New York, the dollar settled at 118 Japanese yen, up from 117.65 yen on Thursday. The dollar rose to 1.665 German marks, up from 1.662.

The British pound was quoted at $1.434, up from Thursday’s $1.431.

Commodities

Oil futures rose on the New York Mercantile Exchange, led by sharp increases in refined product prices. Light, sweet crude oil for April delivery rose 16 cents to $20.29 a barrel.

On New York’s Commodity Exchange, gold rose 90 cents to $328 an ounce, and March silver edged up 0.1 cent to $3.619 an ounce.

Market Roundup, D5

INFLATION THREAT

Prices paid by wholesalers jumped 0.4% in February, the sharpest in more than two years. D2