FINANCIAL MARKETS : Small Stocks Lead Decline; Dow Loses 6.99

Market Overview

The Nasdaq market led a broad decline in stocks Tuesday, though the Dow industrials escaped relatively unscathed for a second day. Analysts said the slide was mostly straightforward profit-taking after stocks’ record recent run.

* Foreign markets also took a breather after surging last week.

* Bond yields were mostly unchanged, despite unexpectedly strong housing construction figures for September.

Stocks

On the sixth anniversary of the 1987 market crash, stocks were mixed until mid-afternoon, when selling in smaller issues began in earnest.

The Nasdaq composite index of mostly smaller stocks tumbled 14.20 points, or 1.8%, to 768.71, its biggest one-day loss since April.

The Russell 2000 index, a purer measure of small stocks, dropped 3.62 points, or 1.4%, to 255.95.

Both indexes had reached record highs last Friday and were leading the broad market up.

Meanwhile Tuesday, the Dow industrials eased just 6.99 points to 3,635.32, supported for a second consecutive session by strength in stocks sensitive to the economy.

Analysts said there was no specific catalyst to the small-stocks selloff other than the motivation to lock in gains from the Nasdaq market’s stellar rally since mid-July. At its peak last Friday, the Nasdaq index was up 16.3% year to date, versus the Dow’s 10% rise.

“Investors were focused on trying to cash in on a good profit,” said Eugene Peroni, director of technical research at Janney Montgomery Scott.

Losers outnumbered winners nearly 2 to 1 on Nasdaq, and about 3 to 2 on the New York Stock Exchange. Trading volume continued heavy on both markets, and reached 304.4 million shares on the Big Board.

Many analysts say that any decline in small stocks is likely to be temporary because gains in small-company earnings are expected to go on outpacing those of blue-chip companies.

Among the market highlights:

* Technology stocks led Nasdaq lower, just as they had spearheaded the recent rally. Some traders said there are worries that orders for tech equipment may be waning.

Microsoft set the tone. It fell 2 3/4 to 80 1/4 on word that it might make some staff cuts. Also falling were Adobe Systems, off 1 3/8 to 21 1/2; Cabletron Systems, down 5 1/4 to 93 1/4; Oracle, down 2 3/4 to 61 1/2; Cirrus Logic, which slipped 2 3/8 to 33; and Sybase, down 3 1/4 to 69 3/4.

In the red-hot telecomm sector, Tellabs tumbled 4 1/4 to 71 3/4, Qualcomm plunged 4 1/4 to 82 and CenCall Communications fell 4 to 40 1/2.

* Biotech stocks also were hit, after rallying recently. Amgen sank 2 1/8 to 42 5/8; Biogen fell 2 1/2 to 38 3/4 and Immunex dropped 1 3/4 to 19 1/2.

* Many growth consumer stocks that jumped last week gave ground. General Mills dropped 1 3/4 to 63 3/8; Quaker Oats fell 1 5/8 to 70 5/8; Warner-Lambert dove 1 3/8 to 69 7/8 and Philip Morris fell 1 1/8 to 52 3/4. Philip Morris reported lower third-quarter earnings and warned that its fourth-quarter numbers also will be depressed due to reduced cigarette prices.

* Bank stocks were mixed. They had slumped Monday, after Morgan Guaranty cut the prime lending rate. Morgan slid 2 1/2 to 72; BankAmerica fell 1/2 to 42 5/8 and Chase eased 3/8 to 33 3/4. But First Interstate rallied 1 1/8 to 61 7/8 and Wells Fargo jumped 2 1/8 to 118 3/4.

* On the upside, the winners were industrial issues that would gain from a stronger economy. Briggs & Stratton rose 2 1/8 to 87; DuPont added 1/2 to 46 1/2; Caterpillar leaped 1 5/8 to 82 1/2; United Technologies jumped 1 3/8 to 58 3/4; Nucor soared 3 1/8 to 55 1/2; Navistar rose 1 1/8 to 24 3/4.

* Airlines also rose again. AMR, parent of American Airlines, gained 1 1/8 to 67; Delta rose 1 3/8 to 56 3/8; UAL, United Airlines’ parent, climbed 1 5/8 to 147.

* Despite the plunge in the Nasdaq market, some new issues were well received. Theater builder Iwerks Entertainment rocketed from 18 at its offering to 33 1/2 at the close; Club Car, a maker of golf carts, was issued at 17 1/2 and closed at 19 3/8.

Overseas, foreign markets continued to pull back. Hong Kong’s Hang Seng index dove 169.72 points to 8,861.41; Taipei’s chief index fell 91.29 points to 3,970.18.

In Tokyo, the Nikkei average eased 2.30 points to 20,069.91.

In Europe, Frankfurt’s DAX index lost 6.56 points to close at 2,026.76; London’s FTSE-100 fell 8 points to 3,129.6.

Other Markets

Long-term bond yields were mostly unchanged after rising on Monday on speculation that the economy is picking up.

The Treasury’s 30-year bond yield closed at 5.84%, versus Monday’s 5.85%.

Traders said the market showed remarkable composure, especially since the Commerce Department said construction of new houses and apartments rose 2.8% in September to the highest level in more than 3 1/2 years.

Analysts said demand for Treasuries improved for technical reasons. For one, cities and states were buying the securities, “storing” cash raised recently from municipal bond offerings.

In other markets Tuesday:

* On New York’s Comex, gold closed at $369.10 an ounce, up 80 cents. Silver added 0.5 cent to $4.41.

* Light, sweet crude oil for November eased 7 cents to $18.06 a barrel.

Market Roundup, D8