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FINANCIAL MARKETS : Stock, Bond Prices Dip on Profit Taking

From Times Wire Services

Stock and bond prices fell sharply Thursday as investors took profits after a two-day rally that had sent the Dow Jones industrial index soaring nearly 100 points and interest rates plunging.

Dimming the luster of a dazzling blue chip rally the day before, the Dow declined 16.84 points to 3,829.89. The indicator’s 70-point gain Wednesday had sent the index to its highest level since late March.

In the broader market, declining issues outnumbered advances by 1,125 to 1,056 on the New York Stock Exchange. Big Board volume slipped to 284.24 million shares from 310.52 million the day before.

In the bond market, the yield on the Treasury’s key 30-year bond shot up to 7.53% after falling to 7.45% as news of unexpectedly weak manufacturing growth in July reduced fears of long-term inflation. The bond’s price, which moves in the opposite direction, plummeted 29/32 point, or $9.06 per $1,000 in face value. The fall accelerated after the price dropped through a psychological barrier where a number of brokers had set orders to sell. The drop was also exaggerated by light trading volume.

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Despite Thursday’s setback, the Dow remains well above 3,800 and at levels unseen since mid-June. Some analysts saw that as a sign of vitality.

“I still view it as some risk out there,” said Steven Goldman, market strategist at Weeden & Co. “But I also think that a bear market wouldn’t show this type of resilience.”

Goldman and others cite strength in technology stocks, which had lagged Wednesday but staged a formidable comeback Thursday. That buoyed the Nasdaq composite index, which is heavily weighted with technology issues. The Nasdaq index gained 3.08 to 754.80.

But most other broad-market indexes lost ground along with the Dow. The NYSE composite index fell 0.43 point to 258.18, and the American Stock Exchange’s market value index retreated 0.86 point to 447.12. The Standard & Poor’s 500 list fell 0.95 to 468.08.

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“I think the market’s probably a little overextended here on the short term,” said Edward Collins, head block trader at Daiwa Securities America. He said the Dow average’s 100-point gain Tuesday and Wednesday came “after a very lethargic summer. That’s a lot to digest in a short period of time.”

Stocks firmed early in the session along with bonds.

But the fixed-income market could not hold its early gains, and selling pressure took hold in the early afternoon.

Among the market highlights:

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* Caterpillar fell 2 3/8 to 112, International Paper lost 1 1/2 to 73 3/8, Eastman Kodak declined 1 1/8 to 49 1/4, DuPont fell 7/8 to 59 1/8, Exxon slid 3/4 to 59 1/8 and Chevron lost 1/2 to 42 5/8.

* IBM, another Dow component, headed the broad advance in technology issues and led the volume in NYSE trading, with 5.17 million shares changing hands. Big Blue gained 2 to 69 3/8, breaking through a 52-week high set last Friday. Compaq jumped 2 1/4 to 38 3/8.

* Walt Disney slipped 1/2 to 42 3/4 after the company said late Wednesday that Jeffrey Katzenberg, chairman of its film studio, was quitting.

* Semiconductor makers were among high-tech stocks on the rise. Intel gained 15/16 to 65 1/8, Texas Instruments rose 2 7/8 to 81 5/8 and Micron Technology leaped 2 3/8 to 43 1/4.

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* Webco Industries tumbled 6 to 7 1/2 after it said late Wednesday that it was restating its second- and third-quarter results due to “erroneous accounting adjustments.”

* Software Etc. Stores rose 1 to 10 and Babbage’s gained 1 1/4 to 13 after the two agreed to merge.

In overseas trading, German shares, led by banks, closed higher, with the DAX 30-share average gaining 25.84 points to finish at 2,152.21. In London, the Financial Times 100-share average gained 29 points to close at 3,234.2. But Tokyo’s Nikkei average slipped back 68.31 points, closing at 20,443.29. In Mexico City, the Bolsa index closed at 2,776.21, down 22.01 points after the peso lost ground against the dollar, traders said.

The dollar was mixed against other major currencies in thin trading.

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