Stocks, Bonds Falter in Year’s Slowest Session

Stocks closed broadly lower Monday in the slowest full trading session of 1996, as bond yields jumped ahead of some crucial economic reports.

The Dow Jones industrial average fell 38.47 points to 5,434.59, with most of the decline occurring in the final two hours.

Losers topped winners by 15 to 9 on the New York Stock Exchange, where trading volume was a mere 281 million shares.

In the Nasdaq market of mostly smaller stocks, the composite index sank 12.97 points, or 1.2%, to 1,066.47. Volume was 418 million shares, second-slowest this year.

Summer Mondays are often sluggish trading days, but more investors than usual may have stayed sidelined as bond yields rose in advance of a barrage of important economic data this week.

The 30-year Treasury bond yield jumped to 7.09% from 7.01% on Friday. Shorter-term yields rose as well, although, as with stocks, trading was thin.

Many analysts believe that economic reports this week will determine whether the Federal Reserve Board decides to raise short-term interest rates to dampen economic growth and inflationary pressures.

One important report is due today: the employment cost index, a gauge of wage inflation. On Thursday the government reports on second-quarter gross domestic product growth, and on Friday the July employment report is due.

“We’re on the cusp here” in terms of the Fed, said Tony Riley, an economist at A. Gary Shilling & Co. in Springfield, N.J.

Although bond yields are already at levels that assume at least a quarter of a point increase in the Fed’s benchmark short-term interest rate, analysts still believe the bond market could react badly to a Fed credit-tightening move, pushing yields even higher.

In the wake of the stock market’s recent decline, higher interest rates could wreak havoc with share prices as well, some Wall Streeters warn.

Among Monday’s highlights:

* Sellers chipped away at many already-battered blue-chip shares, including AT&T;, down 5/8 to 51 1/4; Disney, down 3/4 to 53 3/8; and GM, down 1/2 to 47 1/4.

* In the tech sector, Newbridge Networks plunged 6 1/2 to 41 5/8 after another brokerage raised concerns about near-term earnings growth for the computer networker.

Other tech losers included Xylan, down 2 1/2 to 41 7/8; Cabletron Systems, down 2 1/4 to 58 3/8; and Texas Instruments, off 2 1/8 to 42 3/8.

* Interest-rate-sensitive issues were broadly lower on rate concerns. Merrill Lynch lost 7/8 to 58 7/8, Federal National Mortgage sank 1 to 30 3/4 and Chase Manhattan dropped 1 1/4 to 67 7/8.

* On the plus side, Reebok soared 3 1/2 to 34 3/4 after the company said it will buy back a third of its stock in a “Dutch auction” tender offer, at between 30 and 36 a share. Under the offer, stockholders will specify prices at which they are willing to tender their shares, and Reebok will then determine a final price.

The buyback is aimed at appeasing disgruntled shareholders who are unhappy with the company’s lackluster results, analysts said. The buyback will also raise CEO Paul Fireman’s stake in the company from 14% to 21%, giving him greater control.

* Among Southland issues, Dove Audio was unchanged at 6 7/8 on Nasdaq. Investor Norton Herrick of Boca Raton, Fla., disclosed that he has a 6.8% stake and said it is for investment purposes.

Martin Lawrence fell 1/8 to 1/4. The art firm said the NYSE plans to delist its shares as of Aug. 12.