Blue-chip U.S. stocks dropped back below the 4,000 mark Monday as the failure of the British investment bank Barings gave traders an excuse to take profits.
The Dow Jones industrial index, which closed at a record 4,011.74 on Friday, fell 23.17 points to 3,988.57 on Monday.
At the same time, Barings' collapse sent some investors fleeing to the relative safety of U.S. Treasury securities, pushing bond yields to six-month lows.
The shock waves from the collapse of Barings that rattled Asian and European markets were slow to build up on Wall Street. The Dow actually rose in morning trading before reversing course in the afternoon.
The broad market finished significantly lower than the Dow. Declining issues outnumbered advances by about 5 to 2 on the New York Stock Exchange, though trading volume was moderate.
The Standard & Poor's 500 index, which, like the Dow, hit record highs last week, fell 4.30 points, or 1%, to 483.81, nearly twice the percentage decline of the Dow.
While some investors left stocks, however, others sought out bonds, which have been rallying sharply in recent months on expectations of slower U.S. economic growth.
The yield on the Treasury's main 30-year bond slid to 7.47%, down from 7.52% on Friday and the lowest since Sept. 1.
Among shorter-term issues, the yield on the two-year T-note dropped to 6.76% from 6.87% on Friday.
Bonds rallied in part because Barings' downfall "provides added incentive to look to the U.S. as a safe haven," said Joseph Bench, who manages $400 million in bonds at New Castle Advisers in White Plains, N.Y.
"The big question now becomes how many of these little time bombs (like Barings) are ticking away in banks throughout the world and when will they erupt," said John Gardner, chief investment strategist at Van Liew Capital, which manages about $300 million in assets.
Still, although foreign stock markets in which Barings was active suffered selloffs Monday, most of the declines weren't substantial, traders noted.
Tokyo, the market on which Barings' losing derivative-securities trades were based, was among the worst hit. The 225-share Nikkei average plunged 664.23 points to 16,808.70, a 15-month low, as traders feared that Barings' collapse could force a flood of Nikkei index futures contracts onto the market.
The Barings trader apparently responsible for the bank's nearly $1 billion in losses had taken a huge stake in Nikkei futures, using various complex trading strategies. The Tokyo market's slide this year had turned those trades into disastrous losses that now must be unwound.
Other Asian markets also fell Monday, on investor fears of stock liquidation by Barings or other securities firms that might be affected by its problems. But Hong Kong's Hang Seng index rebounded from steep losses to close at 8,126.65, off 92.30 points.
In Europe, meanwhile, London's FTSE-100 index closed off just 12.4 points at 3,025.3.
In Mexico City, the Bolsa index dove to its lowest close in 28 months, but that decline was attributed mostly to continuing investor fear and uncertainty about the government's economic policy. The Bolsa ended off 106.37 points, or 6.9%, at 1,447.52, its lowest close since Oct. 15, 1992.
Hugh Johnson, chief investment officer at First Albany Corp., said sentiment in the U.S. market was that the Barings crisis was not pervasive enough to affect global markets or the global banking system. "The sense is that the crisis is limited to Barings. . . . It does not indicate a problem with the financial system; it's apparently due to outrageous behavior on the part of one employee," he said.
Among Monday's highlights:
* U.S.-traded Latin stocks suffered renewed declines. Telmex topped the NYSE's most-active list, falling 1 1/2 to 26 7/8. Mexican construction company ICA fell 1 to 5 and media firm Grupo Televisa lost 1 3/8 to 15 1/4.
Also, Telefonica de Argentina lost 2 3/8 to 36 7/8 and Compania de Telefonos de Chile sank 2 5/8 to 60 3/4.
* Bankers Trust, a global investment bank, fell 3/4 to 62 3/4 amid concern about the impact of the Barings debacle. However, most analysts said U.S. financial institutions aren't likely to suffer any negative affects. Still, Chase Manhattan lost 1/2 to 35 3/8 and Merrill Lynch fell 5/8 to 40 3/8.
* Kmart dropped 7/8 to 12 7/8 after its fourth-quarter results disappointed Wall Street.
* Conseco said its board approved proposals to acquire the outstanding shares of CCP Insurance Inc. and Bankers Life Holding Corp. that Conseco does not already own. Conseco rose 3/4 to 35 1/4, Bankers Life gained 2 1/2 to 21 and CCP added 1 1/4 to 20 5/8.
* Compaq Computer lost 7/8 to 33 3/4 after an analyst at Smith Barney lowered its rating on the stock. The analyst also downgraded Dell Computer and Apple Computer. Dell tumbled 2 1/8 to 41 1/2 and Apple lost 3/4 to 38 1/4.
In currency trading, the German mark surged, hitting record highs against the British pound and Italian lira, as the collapse of Barings prompted a sterling selloff that spilled over into other European currencies.
The dollar initially was caught in the selloff and fell against most key currencies in Asian and European dealings. But the dollar rebounded in U.S. trading as dealers took profits from the mark's strength, and because interest in U.S. Treasury securities fueled demand for the dollars needed to buy them.
In New York trading, the dollar closed at 1.467 marks, up from 1.462 on Friday. The dollar was also changing hands in New York at 97.11 Japanese yen, up from 97.00.
The British pound slid to $1.581 from $1.589 in New York.