Stocks, Dollar Move Lower; Bonds Steady : Market Overview

Blue chip stocks closed lower as profit taking reversed an early advance of more than 30 points in the Dow industrial index, which was spurred by a surprise cut in German interest rates.

* Inaccurate news reports that Germany’s central bank failed to cut interest rates triggered sharp swings in the dollar and misled many participants into money-losing trades.

* Treasury bond yields ended unchanged.

Stocks

The Dow Jones average fell 10.27 points to 3,429.17. Volume on the Big Board was a heavy 310.39 million shares, up from 287.3 million Wednesday. Declining issues outnumbered advancing ones by nearly 3 to 2 on the New York Stock Exchange.

Germany’s central Bundesbank cut its Lombard emergency lending rate to 8.5% from 9% as of today and its influential discount rate to 7.25% from 7.50%.

Investors “are taking advantage of strength to lighten up,” said Harry Laubscher, market analyst at Tucker Anthony. “They don’t want to be caught by any bad economic news.”

Gene Jay Seagle, director of technical research at Gruntal & Co., said the lower interest rates in Germany will mean a boost for both European and U.S. economies and help company earnings.

“I was surprised to see the market pull back to the extent that it did in the face of the Bundesbank action,” he said.

But traders were unwilling to follow through on the early upturn, sensing that the market was still in the early stage of a technical correction after the Dow index jumped to a record high last Friday of 3,478.61.

The rate cut by Germany, combined with a strong gain in Dow component Caterpillar Inc., sparked the market’s advance.

But profit taking in airline stocks and others drove the market down in the afternoon.

Among the market highlights:

* Caterpillar leaped 5 1/4 to 67 1/2 after the world’s largest maker of earthmoving equipment posted first-quarter earnings of $34 million, compared with a loss of $157 million last year.

* Dow Chemical gained 2 7/8 to 55 3/4 on higher than expected earnings of $402 million for the latest quarter, compared with a loss of $587 million a year ago.

* Among airline stocks, United sank 2 3/4 to 146 7/8, American fell 1 to 70 1/4 and Delta was off 2 to 57 3/8.

* Oil shares gained on strong earnings in the first quarter, which stemmed from an industrywide cost cutting. Texaco was up 3/4 to 63 5/8, Occidental Petroleum rose 3/8 to 22 1/8 and Sun Co. gained 5/8 to 24.

* Intel Corp. fell 6 3/4 to 96 in over-the-counter trading. Intel was downgraded by Prudential to “hold” from “buy.”

Overseas, Tokyo’s 225-share Nikkei average fell 181.70 points to 19,591.31. In London, the Financial Times 100-share average gained 11.5 points to 2,881.1, and Frankfurt’s 30-share DAX average finished 0.13-point lower at 1,666.74.

Currency

The false reports that the Bundesbank had not cut interest rates were quickly corrected to show that the central bank’s policy-making council in fact had cut the two key short-term rates. But market participants said many currency traders suffered significant losses because they initially sold dollars when they should have been buying.

Despite the rate cuts, the dollar ended broadly lower, dragged down by further appreciation in the Japanese yen.

The false news that the Bundesbank’s policy-making council decided to hold the line on interest rates caused the dollar to fall about half a pfennig to 1.594 marks. Dollar bulls favor lower German interest rates because they make dollar-denominated investments more attractive.

Traders scrambled to buy dollars shortly after the corrected news came out, and the U.S. currency swiftly shot up about 2 pfennigs to 1.614 marks.

“There’s plenty of blood in the street,” said one currency trader in New York.

However, the dollar gradually retreated against major world currencies as the Japanese yen continued to march higher, mostly undeterred by reports of further interventions by the Bank of Japan during Tokyo trading.

In addition, the market took another look at the German rate cuts and decided they were largely expected, analysts said.

In New York, the dollar broke through the key 110-yen level, retreating to a record low of 109.86 yen from late Wednesday’s 110.71. The British pound rose to $1.558, more than late Wednesday’s $1.540.

Credit

The yield on the Treasury’s main 30-year bond closed unchanged, with its yield remaining at 6.74%. But prices of short-term Treasuries rose 1/32 point and intermediate maturities were up to 1/8 point higher, the financial information service Telerate Inc. reported.

Participants said Treasury notes got a slight lift from another Federal Reserve purchase of intermediate securities, probably on behalf of a foreign central bank.

The federal funds rate, the interest on overnight loans between banks, fell to 2.938% from 3.063% late Wednesday.

Commodities

Gold was mostly higher. On the Commodity Exchange in New York, gold for current delivery edged up 50 cents an ounce to $340. Silver for current delivery edged up 1 cent an ounce to $3.914.

On the New York Mercantile Exchange, light, sweet crude oil for June delivery fell 22 cents to $20.15 a barrel.

Market Roundup, D6