FINANCIAL MARKETS : U.S. Markets Shake Off Plunge by Overseas Stocks

U.S. stocks ended mostly lower Monday but still significantly above their low points for the session, amid deep selloffs in foreign markets and renewed concern about interest rates.

Gold’s price, meanwhile, took a sharp hit, surprising analysts who expected it to gain from the turmoil in foreign stock markets.

On Wall Street, the Dow industrial average closed off 2.02 points at 3,867.41 after dropping about 30 points early in the day.

In the broad market, declining issues outnumbered advancing ones by about 5 to 3 on the New York Stock Exchange. Yet some blue-chip stock indexes, such as the Standard & Poor’s 500 index, rose modestly for the day.

U.S. stocks opened weaker after steep overnight declines in most Asian and European markets. The worst-hit market was Tokyo, where the Nikkei-225 stock index plummeted 5.6% to a 12-month low as damage estimates from last week’s devastating earthquake in Kobe mounted.

Other Asian markets followed Tokyo lower, as did most European markets. London’s FTSE-100 index tumbled 40.8 points, or 1.4%, to 2,954.2, while Frankfurt’s DAX index dropped 1.4% to 2,026.83 and Paris’ CAC-40 index gave up 2.2% to 1,772.84.

Meanwhile, Latin American markets, which have been battered in recent weeks in the wake of Mexico’s currency devaluation crisis, also closed mostly lower again. Brazil’s Bovespa stock index fell 1,038 points, or 2.7%, to 37,585, while Argentina’s Merval index fell 13.67 points, or 3.1%, to 423.08.

In Mexico City, however, the beleaguered Bolsa index closed up 2.64 points at 2,068.49 after falling sharply in early trading.

The Bolsa’s recovery--and the rebound in U.S. stocks--coincided with encouraging comments from the White House and some Republican lawmakers about chances for passage in Congress of the Administration’s $40-billion loan-guarantee package for Mexico. The plan’s future had been called into question in recent days because of growing opposition from U.S. labor leaders and others.

In a phone call, President Clinton told Mexican President Ernesto Zedillo he would work closely with Congress to win approval of the package and that he expected the plan to pass.

Wall Street fears that without U.S. support, foreign-capital-dependent Mexico could fall into a deep crisis if its recent currency devaluation continues to scare away foreign investors.

Similarly, capital concerns have dominated other Third World markets in recent weeks, as analysts fear that First World investors will increasingly pull out of higher-risk Third World stocks, leading to slower growth, higher interest rates and lower stock prices.

What’s more, the Kobe earthquake raised fears that Japanese insurance firms and other investing institutions will sell foreign investments to bring cash back to Japan to fund rebuilding efforts.

Amid all of these concerns, analysts say U.S. investments may be in the best position to benefit: If the Federal Reserve Board raises short-term interest rates again, as expected Feb. 1, more capital may flow into U.S. money market securities. And U.S. stocks could be helped by a continuing “flight to quality” worldwide, and from expectations of more moderate economic growth and thus a longer economic expansion.

“The (U.S.) market is giving a pretty good performance,” said Ken Ducey, director of trading at BT Brokerage. But he still worries that recent events are “a lot for the market to absorb.”

In the bond market, where yields have been climbing again in recent days in anticipation of another Fed rate hike, action was mixed Monday. Shorter-term yields were mostly lower, while the yield on the 30-year Treasury bond inched up to 7.90% from 7.88% on Friday.

Gold was the big surprise, with the near-term futures contract falling $3.90 to $381.20 an ounce on the Comex. Traders said gold investors may be responding more to prospects for higher interest rates--a negative for gold--than to turmoil in world stock markets.

Among Monday’s highlights:

* IBM led a long list of companies reporting 1994 earnings, and its stock slipped 1 1/8 to 74 1/4 in reaction, though it rebounded from a session low of 72 3/8.

Among other tech issues, Stratus Computer plummeted 10 7/8 to 28 3/8 after reporting disappointing fourth-quarter revenue growth.

* Oil stocks responded better to earnings news, with Atlantic Richfield up 2 3/4 to 107 3/8, Texaco up 1/2 to 62 1/2, Mobil up 1 to 86 1/8 and Exxon up 1 to 63 3/4.

* Drug stocks rose on news of the surprise bid by Glaxo for Wellcome. Gainers included Pfizer, up 5/8 at 79 3/4; Lilly, up 5/8 at 65 3/4; Upjohn, up 7/8 at 31 7/8, and Biogen, up 2 1/4 at 34 1/2.

* Some banking stocks rebounded from their recent selloff on interest rate concerns and jitters about Third World loans. Citicorp rose 1 1/8 to 40, Chase Manhattan added 5/8 to 33 1/2, BankAmerica gained 7/8 to 42 1/8 and Bankers Trust jumped 1 3/4 to 59.

* Classic consumer-growth stocks attracted buyers. Philip Morris rose 1 5/8 to 58 5/8, Nike jumped 1 5/8 to 73 1/2 and Johnson & Johnson surged 1 3/8 to 55 7/8.

* Golf-related stocks were lower after San Diego-based Aldila warned that 1995 sales and earnings will be below 1994 levels, because the golf club shaft maker’s largest customer, Callaway Golf, said it will buy fewer shafts from Aldila. Aldila’s stock plunged 5 1/8 to 4 7/8.

Callaway, which cited product transitions for its order changes with Aldila, fell 7/8 to 30 5/8, and Cobra Golf fell 1 to 35 1/2.