FINANCIAL MARKETS : Dow Slips as Skeptics Question Stocks’ Rally

The late-summer stock market rally stalled Wednesday, as losses in auto and technology issues pushed major indexes lower. The dollar and gold were slightly higher, but yields slipped.

The Dow Jones industrial average fell 3.88 to 3,913.42, surrendering a small portion of a stunning 166-point increase logged over the previous six trading sessions.

Many investors believe there could be an even more serious correction later this week or next. “The skepticism about the rally is very widespread,” said Hugh Johnson, market strategist at First Albany Corp.

One reason, Johnson and others said, is that advancing issues have not mounted a good lead on decliners.

On Wednesday, winners led losers by about 4 to 3 on the New York Stock Exchange. Big Board volume totaled 364.38 million shares, up from 294.52 million on Tuesday but still unimpressive, analysts said.

Two major financial firms recommended that investors reduce their exposure to stocks. Salomon Bros. cut its recommended stock holdings to 45% in a balanced portfolio from 50%, saying stocks were not likely to move much higher from current prices.

Kemper Securities recommended that investors cut their stock investments to 50% in a balanced portfolio from 55%, but the firm said the recommendation is modest and does not indicate long-term bearishness.

Wednesday’s losses were minimized by big increases in consumer product issues.

Philip Morris increased its regular quarterly dividend to 82.5 cents a share from 69 cents and announced a $6-billion share repurchase program. The company’s stock rose 2 1/2 to 61. That alone helped boost the Dow industrials by more than 6 points.

The dollar gained against most major currencies in quiet trading as the global foreign exchange market awaited word on whether Germany will cut interest rates Friday.

The direction of European interest rates continued to play a role in the movement of the dollar, traders said. Lower rates in Europe would tend to boost the dollar’s value by making investments dominated in dollars relatively more attractive. Higher rates in Europe would tend to weaken the dollar.

On Tuesday, a surprise increase in French interest rates raised some concern that the decline in European rates over the past few years may be over, which helped weaken the dollar against the mark.

But some traders saw the French move as temporary.

The bond market did not strongly react when the Commerce Department said its index of leading economic indicators was flat in July. Economists had expected it to drop slightly. Also, the Purchasing Management Assn. of Chicago said its prices-paid index rose to 79.3% in August from 71.9% in July. The report raised new anxieties about inflation.

The markets largely ignored a report that orders to U.S. factories fell 2.3% in July.

Among Wednesday’s market highlights:

* Auto stocks fell after the Wall Street Journal reported that Chrysler insiders were selling the company’s stock, worried that it may have topped out. Chrysler fell 1 1/2 to 48, Ford fell 1 3/8 to 29 1/4 and General Motors slid 1 3/4 to 50 1/4.

* Texas Instruments shed 4 5/8 to 77 7/8 after a Japanese court ruled that Fujitsu Ltd. had not infringed Texas Instrument’s Kilby semiconductor patent.

Citing the ruling, SoundView Financial Group downgraded its rating on Texas Instruments to “short-term hold” from “buy.”

Other semiconductor stocks also fell, with Intel down 1 1/4 to 65 3/4 and Micron Technology off 3 1/4 to 40 1/4.

* American Airlines parent AMR rose 3/4 to 60 1/4. NatWest Securities raised its 1995 earnings estimate on the company.

* Drug maker Warner-Lambert fell 3 1/4 to 83 1/2. PaineWebber downgraded the stock to “attractive” from “buy,” noting its recent sharp gains.

* United Counties Bancorp shot up 47 to 152 1/2 in Nasdaq trading on news of its merger with Meridian Bancorp Inc. Meridian dropped 5/8 to 32 1/8.

Hong Kong stocks finished sharply higher, with the main index closing above the 9,900 level for the first time since March 14. Other overseas markets were slightly higher in slow trading.