FINANCIAL MARKETS : Dow Falls, Bond Yields Jump as Oil Prices Rise

Wall Street suffered through a day of confused selling, as blue chip stocks sank on economic worries while bond yields surged.

The Dow Jones industrials dropped 37.45 points, or 1%, to 3,575.80, the biggest one-day point drop in five months.

The broader market wasn’t hit as hard, however, and trading was relatively slow. Losers topped winners 11 to 9 on the New York Stock Exchange, where volume was 231 million shares.

In the bond market, sellers continued to hammer the Treasury’s benchmark 30-year bond, sending the yield to 6.10% by the close, up from 6.04% Friday and the highest since 6.12% on Aug. 30.

The stock and bond markets were out of whack Monday, traders noted. If fears about the still slow economy were indeed encouraging stock sales, bond yields should have fallen--because a weak economy is bullish for bonds.

But both markets may have been unnerved by a sharp jump in oil prices, traders said. Crude oil shot up 63 cents a barrel ahead of OPEC meetings this weekend, where the cartel is expected to cut production to shore up prices.

Even if oil prices stall out, experts say stock and bond markets may have their own agendas in the short run: Traditional end-of-quarter concerns about corporate earnings may continue to weigh on stocks, while in the bond market, more investors may feel compelled to take profits from the sharp drop in yields during the quarter.

Michael Metz, strategist at Oppenheimer & Co. in New York, said profit worries were evident in the selloff Monday in key industrial stocks. “Market watchers aren’t thrilled with the performance of the market recently or the economy,” Metz said. “There’s a growing fear that corporate profit expectations are too high.”

But many analysts attributed Monday’s selling mostly to normal profit taking and to a wave of computerized sell programs that hit blue chips late in the day. In the Nasdaq market of mostly smaller stocks, the composite index actually finished slightly higher for the day.

Still, the Dow finished at its lowest level since Aug. 13, raising fears that profit taking could snowball between now and the end of the quarter, Sept. 30.

Among the market highlights:

* Some of the hardest-hit stocks were industrial issues that are particularly sensitive to economic swings. Alcoa fell 2 3/4 to 68 3/4, DuPont lost 1 to 47 7/8, International Paper slid 1 1/2 to 61 3/8 and IBM sank 1 1/8 to 42 1/4.

Also in that group, BWIP, a Long Beach-based maker of fluid-control equipment, tumbled 2 to 24 1/2 after saying current-quarter earnings will be below year-ago results. It blamed the economy.

* Drug stocks were hit again in advance of President Clinton’s health-care speech Wednesday. Bristol-Myers lost 1 to 57 3/8, Pfizer fell 1 1/8 to 59 and Johnson & Johnson sank 1 1/4 to 37 7/8.

Elsewhere in the health care sector, National Health Labs plunged 1 7/8 to 15 1/8 in heavy trading after CBS News’ “60 Minutes” charged that the company systematically bills medical tests not ordered by doctors. National Health branded the charges “utterly false.”

* Among slumping former growth stock issues, shoe giant Nike fell 1 3/4 to 46 1/4, a new 1993 low, after reporting a 7% drop in quarterly earnings and warning that the current fiscal year’s results won’t match last year’s record. Other athletic shoe stocks also sank. Reebok fell 5/8 to 24 and K Swiss lost 1 5/8 to 21 5/8.

* On the upside, some technology stocks showed strength. Oracle added 2 to 54 5/8, Motorola gained 2 to 93 3/4, Intel added 7/8 to 65 1/8 and AST Research was up 1 to 16 1/4.

Overseas, markets were mixed. Frankfurt’s DAX leaped 30.85 points to 1,912.84, continuing to rebound. But London’s FTSE-100 index eased 1 point to 3,004.5. And Tokyo’s Nikkei average fell 125.01 points to end at 20,266.03.

Credit

Interest rates were higher across the board, although the 30-year T-bond again took the brunt of the selling.

Traders noted uneasiness ahead of the Treasury’s planned sale of $16 billion in two-year notes today and $11 billion in five-year notes Wednesday. Added supply often causes yields to back up somewhat.

Supply concerns were magnified Monday by the sale of $1 billion in 10-year bonds by the Republic of Portugal. The bonds were priced to yield 0.45 percentage point above comparable Treasuries.

The surge of bond offerings is “offering investors more choices at better yields,” said Kevin Logan, chief U.S. economist at Swiss Bank Corp. That may keep pressure on Treasury yields, he said.

Commodities

Crude oil futures spouted to a two-week high as traders lost hope for lower prices ahead of this weekend’s Organization of Petroleum Exporting Countries meeting.

Crude rallied 63 cents to $17.70 a barrel on the New York Mercantile Exchange, where players scrambled to cover positions ahead of OPEC meetings this weekend and seasonal demand.

The 12-nation organization will meet this weekend to plan fourth-quarter strategy. Traders were betting that the low prices might cure the discord that has prevented OPEC from successfully capping production.

“The more crude prices fall, the more likely it is that OPEC will be able to act more as a cartel,” said analyst Thomas Blakeslee of Brody, White & Co. in New York.

Blakeslee said the market also must contend with a seasonal upswing in demand for oil as the winter heating months approach.

Elsewhere, gold for current delivery rose on New York’s Comex to $353.50 an ounce, up $2.70 from Friday. Silver for current delivery closed at $4.09, up 5 cents.

Currency

The dollar rose against the Japanese yen as traders anticipated a cut in the official Bank of Japan discount, which occurred early today.

The dollar fell initially in Asian trading Monday on the belief that the discount rate cut would be disappointingly small.

But in trading Monday in New York, the market began to focus on the expectation of a larger rate cut--to 1.75%, instead of the first-rumored 2%. And in fact, the lower number became reality today.

The U.S. dollar closed at 104.67 Japanese yen in New York, up from Friday’s 104.47.

The bigger cut in the discount rate should be interpreted as a sign that Japan is trying to stimulate its economy and ease trade tensions with the United States, traders said. If those tensions were allowed to persist, traders believe that U.S. policy-makers would encourage a stronger yen. A rising yen makes Japanese exports more expensive, and foreign imports to the country cheaper.

Elsewhere, the dollar rose against the German mark early in the day, but lost steam when it couldn’t break through the level of 162.50, traders said.

It then drifted lower to close at 1.612 marks, down from 1.615 on Friday.

Market Roundup, D8