Dow Falls 30 on Interest Fears, Bond Weakness

Market Overview

* Weakness in the bond market induced by the prospect of rising interest rates dragged down stocks Thursday, knocking the Dow industrials off their record closing level reached a day earlier.

* Long-term Treasury bond yields continued to rise as Federal Reserve Chairman Alan Greenspan issued a staunch defense of the central bank’s decision to lean toward higher interest rates.

* The dollar plunged against the Japanese yen.

Stocks

A series of computerized sell programs late in the session accelerated the downward momentum on Wall Street.

The Dow and broader market indicators registered modestly lower readings most of the day amid profit taking until the final hour, when the selling intensified.

At the close, the Dow was off 30.18 points, or 0.9%, from Wednesday’s all-time high, ending at 3,525.22. Losing issues topped gainers on the New York Stock Exchange by 12 to 8, but volume slowed to 249.6 million shares.

Some analysts said Wall Street’s weakness was unsurprising given the so-so performance most stocks turned in on Wednesday, when the Dow crawled to a new high but the broader market declined.

Fresh evidence of sluggish conditions in the job market also weighed on stocks. The Labor Department’s weekly report showed that the number of Americans filing first-time claims for jobless benefits unexpectedly shot up by 24,000 last week to the highest level in 13 weeks.

Among the market highlights:

* Blue chips leading the market lower included 3M Co., down 2 1/2 to 108 3/4; GE, down 1 to 98; Deere, off 1 1/8 to 64 5/8; and Kimberly Clark, off 1 5/8 to 45 1/4.

* Many consumer-products issues were broadly lower, continuing the pounding they have taken for more than a year on worries about a loss of pricing power.

Colgate-Palmolive fell 2 to 48 3/4 after reporting dismal second-quarter sales. Also, Ralston Purina dropped 2 to 42 5/8 after reporting slightly lower quarterly earnings.

* Some tech stocks slumped. Microsoft fell 1 3/8 lower to 77 5/8 on news that the Federal Trade Commission was deadlocked on whether to bring antitrust proceedings against the firm. Meanwhile, another software giant, Lotus Development, fell 2 3/4 to 36 7/8 after its earnings report failed to impress investors.

*Northrop slumped 2 1/8 to 39 7/8 after Cowen & Co. downgraded the stock to “hold” from “buy” on a short-term basis, citing reduced expectations for 1993 earnings.

Overseas, London’s Financial Times 100-share average gained 6 points to close at 2,820.1. Germany’s 30-share DAX average ended down 0.29 points at 1,823.52, and Tokyo’s 225-share Nikkei average was up 34.90 points to 20,115.81.

Credit

The rise in bond yields was triggered by Federal Reserve Chairman Alan Greenspan’s comments in congressional testimony indicating that higher interest rates are inevitable in the future.

“When he starts talking about higher interest rates, the markets retreat,” said Don Hayes, analyst at Wheat First Butcher & Singer.

The 30-year T-bond’s yield rose to 6.65% from 6.62%. It was 6.55% on Tuesday.

In an appearance before the Senate Banking Committee, Greenspan bluntly warned that “at some point (interest) rates are going to have to move up.” The direct reference to rates was unusual for Greenspan, who typically mentions them in vague terms.

Other Markets

The dollar plunged against the Japanese yen but rose against other currencies as tensions flared in Europe’s exchange-rate system.

The dollar slid to 105.25 Japanese yen from 108.13 Wednesday after Deputy Treasury Secretary Roger Altman said the surplus in Japan’s current account could fall more quickly due to the recent appreciation of the yen and the Japanese government’s efforts to stimulate its economy.

But the more important development was an increase in tensions in the European Exchange Rate Mechanism, which sets maximum fluctuations for member currencies. “It seems like we’re seeing a lot of flight to quality into the yen due to the uncertainty in the European market,” said Lee Kassler, trader at National Westminster USA.

The dollar rose to 1.704 German marks, up from 1.698 on Wednesday. Elsewhere, gold for current delivery closed at $391.10 an ounce on the Comex in New York, up $1.90. Silver gained 5.1 cents to $5.00. Market Roundup, D6