Stocks Continue Their Retreat as Yields Climb

Stocks retreated Friday for the third day in a row as investors, nervous about a rise in bond yields, continued to extract profits from the high-flying market.

The Dow Jones industrial average ended down 48.05 points to close at 5,503.32. Even though it set records Monday and Tuesday, the Dow was off 38.30 points for the week, its first weekly loss since Jan. 12.

The yield on the 30-year benchmark Treasury bond jumped to 6.24% from 6.16% on Thursday. The yield was under 6% as recently as Jan. 19.

The Dow industrials started Friday sharply lower, losing as much as 52 points in the morning, prompting the New York Stock Exchange to briefly restrict computer-driven sell programs. The market made two stabs at recovering, only to retreat again.

Traders said Friday’s “double witching” expiration of options and futures contracts contributed to the volatility. But the pullback was also viewed as a return to more reasonable levels after blistering gains early this week and last week.

Peter Canelo, market strategist at NatWest Securities, said Friday’s action was normal after a strong winning streak. On Tuesday, the Dow hit its seventh consecutive closing high of 5,601.23 points. Canelo said he is bullish on the market for the long-term, mostly because interest rates are not high enough to pose a threat to corporate profits or competition from the bond market. “It’s hard to see the market having real serious difficulties as long as we’re in an easing mode,” Canelo said.

Declining issues led advancers by about 7 to 6 on the New York Stock Exchange. Trading volume on the floor of the Big Board was heavy at a revised 432.38 million shares, up from Thursday’s pace.

Broad market indexes were mixed. The NYSE’s composite index fell 1.57 to 346.19. The Standard & Poor’s 500-stock index fell 3.34 to 647.98. But the Nasdaq composite index rose 0.17 to 1,090.71. The American Stock Exchange’s market value index rose 1.48 to 561.84.

Stocks fell not only on profit-taking but in sympathy with the bond market, which buckled under hedge-fund selling and new supply. Bonds fell despite a raft of economic data confirming the economy is slowing down. The data might have helped bonds by raising hopes that the Federal Reserve Board would soon push interest rates lower in a bid to restimulate the economy.

The Fed said the nation’s industrial production plunged 0.6% in January. That was not as steep as the 0.8% decline that many analysts had predicted, but it was the biggest drop in nearly five years. The central bank also reported that the nation’s industries were operating at 81.9% of capacity in January, down from 82.7% in December and the lowest since November 1993.

In another report, the Commerce Department said construction spending rose 0.9% in December, wiping out an identical loss a month earlier. But in a third signal that the economy is sluggish, the University of Michigan reported consumer sentiment fell in January.

Among the market highlights:

* Investors sold a wide swath of stock issues, including consumer, cyclical and energy names. Leading the Dow industrials lower were consumer issues Eastman Kodak, down 2 1/8 to 75 1/8, and Sears Roebuck, down 2 1/8 to 42 3/4.

* Exxon fell 1 1/4 to 81 1/2 and led a retreat of oil stocks. Texaco fell 1 3/8 to 80 3/8, but Chevron lost only 1/4 to 55 3/4.

* Basic-materials stocks, which typically fall when the economy sours, were also under pressure. International Paper fell 1 1/8 to 37 1/2, DuPont lost 1 1/8 to 78 5/8, and Minnesota Mining & Manufacturing slipped 1 to 66 1/2.

* Computer stocks, continuing their mercurial trend, were broadly mixed. IBM rose 3/8 to 118, extending strong gains from earlier this week. Digital Equipment rose 1 3/8 to 69 1/2. Hewlett-Packard shot up 9 to 95 1/4 in leading volume of more than 8 million shares on the Big Board, after the computer maker said first-quarter net earnings were $1.50 a share, up from $1.15 a year ago. and that growth in the personal-computer business is outstanding.

Overseas, London’s FTSE-100 closed 8.9 points off at 3,770.9, but up 54.6 from last Friday after setting a new trading peak of 3,791.6. Tokyo’s Nikkei average finished down 83.42 points at 20,802.77 falling 132.05 on the week.