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FINANCIAL MARKETS : Stocks Decline Despite Boom in Merger Deals

From Times Staff and Wire Reports

A fresh surge in takeover announcements failed to buoy Wall Street on Monday as most stocks ended the day lower.

The Dow Jones industrials eased 11.56 points from Friday’s record high to finish at 4,814.01. Losers edged winners by 1,162 to 1,071 on the Big Board in typically modest Monday trading action.

The market’s only major bright spot, apart from merger deals, was the transportation stock sector. The Dow transports index jumped 19.50 points to a record 2,010.45.

Analysts said a renewed decline in some key technology stocks cast a pall over trading Monday despite a flurry of takeover announcements. Brokerage Goldman Sachs dropped Microsoft from its “priority list” of stocks, predicting slower earnings growth in 1997. The stock slid 2 1/8 to 97 3/8.

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That triggered selling in many other tech issues, which have been riding a roller coaster recently.

In the takeover arena, the day’s deals included First Bank System’s $10.1-billion offer for First Interstate, International Paper’s $3.5-billion bid for Federal Paper Board and Sherwin-Williams’ $400-million offer for Pratt & Lambert.

While the target companies’ shares generally surged after the deals were announced, the bidders’ shares in many cases closed lower. That was a drag on the market overall, analysts said.

Arthur Micheletti, strategist at Bailard, Biehl & Kaiser in San Francisco, said merger mania may be beginning to trouble some investors. Companies “tend to overpay and then they have to absorb the acquisition. When you see a lot [of deals], it’s usually toward the end of the bull market,” he said.

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But many experts say takeover mania shows no signs of slowing.

Elsewhere Monday, a modest selloff in the bond market may have helped undermine stocks. The 30-year Treasury bond yield inched up to 6.29% from 6.27% on Friday as the Treasury canceled plans for this week’s note auction--waiting for Congress to raise the federal debt ceiling.

Among Monday’s highlights:

* Federal Paper Board surged 6 1/2 to 52 after International Paper bid 55 a share. IP dropped 1 to 36 1/8. Cordis sank 5 3/8 to 105 1/4 after it OK’d Johnson & Johnson’s 109-a-share bid. Investors had hoped for more. J&J; eased 1/8 to 80 1/8.

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Elsewhere, Pratt & Lambert rocketed 13 7/8 to 34 5/8 after Sherwin-Williams bid 35. Sherwin fell 1/8 to 37 1/2. And NetWorth zoomed 6 7/8 to 41 3/8 after Compaq offered 42 a share. Compaq lost 1 7/8 to 54 5/8.

* The Dow transports index was boosted by trucker Roadway Services, which jumped 4 to 50 1/4 after saying it will sell its money-losing air freight unit.

* Tech stocks were broadly lower after Goldman Sachs downgraded Microsoft, even though the brokerage kept the firm on its “recommended” list.

The group was also hurt by software firm Autodesk’s announcement that third-quarter earnings will be below estimates. Autodesk fell 2 15/16 to 31 9/16.

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Other tech losers included Intel, down 1 11/16 to 70 13/16; Micron Technology, off 3 3/4 to 64 1/2; IBM, off 1 to 100 1/2; Netscape Communications, which sank 5 1/4 to 90 after surging last week, and computer distributor Merisel, off 1/4 to 5 5/8. After the market closed Merisel reported a third-quarter loss.

* The new-issue market provided some excitement. Clarify, a software firm, surged 4 5/8 to 26 7/8, continuing to rocket from its initial offering price of 13 on Friday.

And Pete’s Brewing, maker of Pete’s Wicked beers, was priced at 18 a share and will begin trading today. The stock is expected to zoom thanks to heavy interest.

In foreign trading, Mexico’s Bolsa index sank 34.74 points to 2,275.30 on new peso weakness.

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