Dow Dips 7.83 as Blue-Chips Are Sold Off

* The stock market ended mixed Wednesday as rising interest rates provided an excuse to sell blue-chip shares that had run up in value recently.

* Long-term bond yields resumed their rise after the government reported a steeper than expected increase in new orders for durable goods.

Stocks

Smaller-company stocks, which had lost ground in recent days, recovered as investors turned to issues they considered undervalued.

The Dow Jones industrial average fell 7.83 points to 3,664.66, on Big Board volume of 279.83 million shares, down from Tuesday’s 284.53 million. In the broader market, however, advancing issues narrowly outnumbered declines on the New York Stock Exchange.

The Nasdaq average rose 6.42 points to 771.88.

Investors mostly ignored the Commerce Department’s durable goods report.

“Everyone knows the economy has turned up. The durables report was not a real surprise,” said Alfred Goldman, director of technical market analysis, with A.G. Edwards & Sons.

Indeed, among the Dow stocks hardest-hit were those most sensitive to the economic cycles, such as chemicals, forest products and metals. Those issues had been among the best performers this week.

Minnesota Mining & Manufacturing, which also posted slightly lower earnings, fell 1 5/8 to 103 1/2, while Reynolds Metals lost 1 1/2 to 44 1/2 and International Paper fell 1 to 62 1/8.

Goldman described the downturn in the Dow as part of the market’s normal pattern this year, where stocks move higher and then cautious investors sell shares that have run up in value.

“It goes up three steps, down two steps and then takes a nap,” he said. The Dow hit a record on Monday, before retreating slightly Tuesday and then again Wednesday.

The good news on the economy helped push bond yields higher and that didn’t help stocks, investors said. Signs of economic growth often spook bond investors because they carry the threat of inflation, which erodes the value of fixed-income securities such as treasuries.

And stocks have often followed bonds in this low interest rate environment because the lower yields that come with higher bond prices make the potential returns from stocks more attractive.

Small stocks, however, staged somewhat of a recovery from their lows of recent days, as investors stepped in to buy stocks that had been hardest hit, said Bill Allyn, managing director at Jefferies & Co.

Finally, Wednesday’s mixed bag of corporate earnings reports provided little direction for the market as a whole, but moved individual stocks.

Among the market highlights:

* Although Eastman Kodak reported a loss for the third quarter, the stock rose 4 3/8 to 62 1/4 after trading lower for most of the day. Shortly after the market closed, it was reported that George M.C. Fisher, chairman and chief executive of Motorola Inc., has been elected chairman, president and chief executive of Kodak.

* Ford Motor reported third-quarter earnings that were the best for the period since 1988, and the share price rose 5/8 to 60 3/8. That helped boost the stocks of other auto companies. General Motors rose 1 1/2 to 46 7/8 and Chrysler was up 1/2 to 55 1/4.

* Among technology shares, computer makers rallied a day after IBM reported a smaller than expected third-quarter loss. IBM shed 1/8 to 46 1/8, but Apple Computer surged 2 to 31 3/4, Dell Computer gained 7/8 to 20 3/8, Compaq Computer 2 5/8 to 67 7/8 and AST Research ended up 7/8 to 19 5/8.

* Los Angeles-based Seda Specialty Packaging completed its initial public offering of 1.6 million shares of common stock at $14 per share on the Nasdaq market. Seda closed up 4 3/8 at 18 3/8.

* Timberland was up 7 to 77 after the footwear maker reported sharply higher earnings.

Stocks fell overseas. In Frankfurt, the DAX 30-share average ended down 15.64 at 2,043.08, while Tokyo’s key 225-share Nikkei average lost 184.82 points to close at 19,838.78. London’s Financial Times 100-share average finished at 3,154.3, down 11 points.

In Mexico City, the Bolsa index ended 18.64 points lower at 2,010.42.

Credit

The news of a modest rebound among manufacturers depressed a market that has become increasingly vulnerable lately to signs of economic strength, which raises the likelihood of inflation pressures. Inflation can reduce the value of fixed-income securities such as bonds.

The Treasury’s main 30-year bond yield, which fell modestly Tuesday, rose to 6.0% from 5.98%. Its price, which moves in the opposite direction, fell 1/4 point, or $2.50 per $1,000 in face value. In the past four trading sessions, the long bond’s price has tumbled 2 1/2 points.

The Commerce Department reported that orders to U.S. factories for big-ticket durable goods increased 0.7% in September, the third gain in four months. The increase reflected broad-based gains in orders for machinery and primary metals.

“That was the catalyst for today’s selling pressure,” said Kevin Flanagan, money market economist at Dean Witter, Discover & Co. “The whole undercurrent lately has been a perception in the market that perhaps the economy is picking up more steam compared to the first half of the year.”

Flanagan said prices may have fallen lower if not for strong demand at the Treasury’s auction of five-year notes, which pushed down yields to the lowest level on record.

Demonstrating the good demand, the bid-to-cover ratio, a measure of Treasury auction demand that compares the number of bids offered to those accepted, was 2.75 to 1, up from an average of 2.6 to 1 in the past 13 note auctions.

The Treasury sold $11 billion in five-year notes at a high yield of 4.81%, down from 4.83% at the last auction Sept. 22. It was the lowest rate since five-year notes were first auctioned in September, 1976.

The federal funds rate, the interest on overnight loans between banks, was 2.75%, down from 3% on Tuesday.

Other Markets

The dollar rose against the Japanese yen as the currency markets focused on Japan’s economic weakness and the Clinton Administration’s cancellation of planned trade sanctions against Japan. The dollar finished mixed against other currencies.

The dollar’s move against the yen Wednesday “was largely a function of progress in U.S. trade talks,” said David De Rosa, a Swiss Bank Corp. director in New York.

Currency traders said the yen was also hurt by the tumbling Nikkei Stock Average, which fell below the 20,000 level for the first time since July 28.

In New York, the dollar finished at 108.75 Japanese yen, up from 108.20 on Tuesday. It fell against the German mark, closing at 1.6795 marks, down from 1.6805.

Meanwhile, in commodities trading, gold closed at $369.50 an ounce on the New York Comex, up 30 cents from Tuesday. Silver rose 6.2 cents to $4.444 an ounce.

Elsewhere, crude oil futures rose 11 cents to $17.65 a barrel on the New York Merc.

Market Roundup, D6