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 modestly lower in heavy trading.

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

Rising stocks still outnumbered losers by 12 to 9 on the New York Stock Exchange and by 15 to 12 on the Nasdaq market, a sign of the revived demand for shares.

But that breadth failed to impress most Wall Street pros. Many argue that the market’s advance in recent weeks wasn’t as powerful as the Dow’s gains made it seem.

“The skepticism about the rally is very widespread,” said Hugh Johnson, market strategist at brokerage First Albany Corp.

Bearish Wall Streeters also said the market’s inability to mount a strong advance in the face of Wednesday’s high trading volume--355 million shares on the NYSE--was a bad sign.

Indeed, two major financial firms recommended Wednesday that investors reduce their exposure to stocks. Salomon Bros. cut its recommended stock weighting to 45% in a “balanced” portfolio, from 50%, saying stocks aren’t likely to move much higher from here.

Kemper Securities recommended that investors trim their stock investments to 50% in a balanced portfolio, from 55%, though the firm said the change doesn’t indicate a shift to long-term bearishness.

Stocks got little direction from the bond market Wednesday. Yields closed marginally lower, paying scant attention to mixed economic reports.

The government said its index of leading economic indicators was flat in July, another sign of a slowing economy.

But the Purchasing Management Assn. of Chicago, in a survey of regional manufacturers, said its prices-paid index for materials rose sharply in August, a potential warning sign of future inflation.

The 30-year Treasury bond yield closed at 7.45%, down slightly from 7.46% on Tuesday.

Many bond market players appear to be holding back on buy or sell decisions until Friday, when the government will report August employment--the first major look at economic activity last month.

The dollar, meanwhile, continued to strengthen, which may help stocks and bonds in the long run, analysts say. The dollar closed at 1.5815 German marks in New York, up from 1.5769 on Tuesday. It also closed at 100.15 Japanese yen, up from 99.60.

Some currency traders, however, worry that Germany’s Bundesbank could surprise the markets by raising short-term interest rates today. Europe’s economy is recovering, and that has prompted increases in short-term rates in France, Sweden and Italy recently.

Among U.S. market highlights:

* Auto stocks tumbled in heavy trading after the Wall Street Journal reported that some Chrysler executives have been selling their personal shares. The market often regards insider selling as a sign that management is bearish on the company’s near-term prospects.

Chrysler sank 1 1/2 to 48, GM dropped 1 3/4 to 50 1/4 and Ford lost 1 3/8 to 29 1/4.

* Semiconductor stocks led tech shares lower. Texas Instruments slumped 4 5/8 to 77 7/8 after a Japanese court ruled that Fujitsu had not infringed TI’s Kilby semiconductor patent.

Other semiconductor stocks falling included Intel, down 1 1/4 to 65 3/4; Micron Technology, off 3 1/4 to 40 1/4; Cirrus Logic, down 3/4 to 27 5/8, and Advanced Micro Devices, down 1/2 to 29.

* On the plus side, Philip Morris surged 2 1/2 to 61 after the tobacco company increased its regular quarterly dividend to 82.5 cents a share from 69 cents and announced a $6-billion share buyback plan.

* Defense stocks continued to rise in the wake of Tuesday’s merger deal between Lockheed and Martin Marietta. Lockheed jumped 2 to 78 3/4, Marietta gained 2 1/8 to 50 7/8, Northrop Grumman added 1 to 45, E-Systems rose 7/8 to 43 and Logicon was up 1 to 31 1/8.

Overseas, London’s FTSE-100 index inched up 1.7 points to 3,251.3, and Frankfurt’s DAX index added 2 points to 2,212.85. In Tokyo, the Nikkei index gained 36.41 points to 20,628.53.

In Mexico City, the Bolsa index tumbled 30.11 points to 2,702.73.

Hong Kong was a bright spot: The Hang Seng index soared 242.83 points to 9,929.39, the first close above 9,900 since March 14.