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Rising interest rates and a slump in tobacco shares helped send stocks lower Wednesday in a light summer session.
The Dow Jones industrial average fell 31.44 to 5,689.82, recovering over the last two hours from a 48-point slide. More than a third of the drop came from Philip Morris, which was dragged lower by the latest storm clouds facing the tobacco industry.
But even without Philip Morris, the Dow’s retreat marked the third time since July’s steep sell-off that the famed blue-chip barometer has stumbled after rebounding above 5,700 and back within striking distance of its all-time high at 5,778.00, set May 22.
Broader market measures trimmed their losses toward the close, and a late rally in technology shares pulled the Nasdaq market into positive territory.
Stocks started the day lower with bonds as the yield on the 30-year Treasury--a key determinant of corporate and consumer borrowing costs--rose to 6.83 percent from 6.79 percent late Tuesday.
There was little news to explain the weakness in Treasuries other than profit-taking on the market’s recent strength and some long-range speculation about the impact of a Bob Dole victory in November, said Eric Miller, chief strategist at Donaldson, Lufkin & Jenrette Securities in San Francisco.
“A few weeks ago, so few people thought the Republicans had a chance that it didn’t seem important. But with the events of the last week or two, that’s changed a bit,” Miller said, referring to Dole’s rise in the polls following last week’s Republican National Convention. “It creates nervousness because of Dole’s proposed tax cuts and a lack of credibility that spending cuts would be enacted simultaneously.” A rising federal deficit could pressure bond prices with a flood of new government debt securities.
The Dow’s biggest decliner was Philip Morris, which worsened throughout the session on a series of potentially perilous developments for the tobacco industry.
Just as a widely watched tobacco liability trial in Indianapolis was drawing to a close, three more states filed lawsuits Tuesday and Wednesday seeking billions of dollars in damages from cigarette makers to pay for the cost of treating smoking-related illnesses.
Then, late in the session, came news that the Clinton Administration’s decision on whether or not to allow the Food and Drug Administration to regulate tobacco as a drug could come as early as Friday.
Philip Morris shares fell 3 7/8 to 87 5/8. Rival cigarette maker RJR Nabisco fell 1 3/8 to 25 1/4.
With few major economic reports on the horizon and third-quarter earnings considerations more than a month away, many analysts expect the market to drift until after Labor Day.
Declining issues outnumbered advancers by a 7-to-6 margin on the New York Stock Exchange, where volume totaled 348.74 million shares as of 4 p.m., the 10th straight tally below 350 million.
Among market highlights:
* Late buying in technology issues lifted the recently battered Nasdaq Composite index, which closed up 2.17 points to 1,126.84. IBM rose 1 7/8 to 112 3/8, Intel added 3/4 to 80 1/4 and Cisco Systems added 1 1/4 to 56 1/4.
* Newbridge Networks jumped 11 to 59 3/8 after the maker of networking equipment laid to rest lingering investor fears with a solid first-quarter report.
* Jenny Craig slumped 5 7/8 to 11 3/8. The company late Tuesday blamed new weight-loss drugs for recent soft demand for its weight-loss programs.
* Rexene Corp. fell 2 1/4 to 10 1/2 after privately-held Huntsman Corp. said late Tuesday that it was withdrawing its $460 million bid for the chemical firm.
* Oracle lost 1 1/8 to 37 7/8. Goldman Sachs downgraded the stock after its recent run-up.
Overseas, Tokyo’s Nikkei stock average rose 0.7 percent, Frankfurt’s DAX index fell 0.6 percent, and London’s FTSE-100 fell 0.3 percent.
Crude oil prices moved lower Wednesday after government and industry reports showed crude inventories increased this past week.
Crude oil traders at the New York Mercantile Exchange have been hit by a double dose of bearish news.
Late Tuesday the American Petroleum Institute (API) reported U.S. crude oil supplies increased 296,000 barrels during the week ended Aug. 16. Traders had expected a decrease. On Wednesday the government’s Energy Information Administration (EIA) report showed an 1.8 million-barrel increase in crude inventories for the week.
Both increases in inventories were attributed to a jump in imports. The API report showed daily imports averaged nearly 8.78 million barrels vs. 8.18 million the previous week.
Nymex crude oil for October delivery closed down 39 cents at $21.72 per barrel. September heating oil closed down 0.69 cent at 60.98 cents per gallon and September gasoline was down 0.89 cent at 63.12 cents per gallon.
Also, coffee prices at the New York Coffee, Sugar and Cocoa Exchange rose in reaction to exchange data that showed a tight supply of coffee registered for delivery against the September contract.
Delivery of physical coffee against the September contract begins Thursday and traders noted that September’s open interest was still relatively high, the equivalent of 839,000 bags as of Aug. 20, compared with 34,516 bags available for delivery.
Market Roundup, D6
