Dow Off 28 as Street’s Focus Shifts to Bonds

Blue-chip stocks slumped Monday in the second-slowest session of the year as a jump in long-term interest rates to 7% drew Wall Street’s attention from a battery of buyout deals.

The yield on the Treasury’s main 30-year bond hit the 7% threshold for the first time in nearly a month, up from 6.94% on Friday.

The bond market reacted immediately Monday, the first chance after the minutes of the Fed’s July policy-making meeting were released late Friday.

The July 3 minutes showed Federal Open Market Committee members tilted toward higher rates if the economy strengthened too much--not surprising in itself, but the new information prompted investors to sell because recent reports have suggested possible growth in the economy, and market players are worried about a Fed rate hike at its next meeting Sept. 24, or later this year.

Inflation-sensitive bond yields had already shot up Friday to three-week highs as July durable goods orders rose 1.6%, against expectations of a 0.3% rise. Analysts said bond prices were further weighed down in thin trading by the prospect of bond offerings--$18.75 billion two-year notes on Tuesday and $12.5 billion five-year notes on Wednesday.

“The bond market is really the story of the stock market,” said Michael Metz, chief investment strategist at Oppenheimer & Co.

“As rates go up, stocks are looking more and more expensive,” he said. “The whole mind-set of bonds has changed 180 degrees in the past week. There are fears of higher rates and that the Fed will raise rates sooner or later.”

The Dow Jones industrial average ended down 28.85 points at 5,693.89. In the broader market, declining issues beat advances 1,331 to 869.

Volume of 281.4 million shares just edged past July 29’s 281.3 million, the slowest full session so far this year. “August tends to be the lightest month of the year and the last week of August tends to be one of the lightest,” said Phil Roth, Dean Witter Reynolds’ chief technical analyst.

Metz said the flurry of merger pacts announced “was the only place with any real upside action, and Philip Morris.”

Shares of Philip Morris and other tobacco makers recouped some of their stiff losses after an Indiana jury ruled late Friday in favor of major tobacco companies in a tobacco liability case. Philip Morris jumped 2 1/4 to 90 1/4.

Among market highlights:

* Conseco rose two to 44 on news that it will acquire two insurers and increase its stake in two others, giving it full ownership of those firms.

Conseco agreed to buy American Travellers, which gained 3 3/16 to 31 9/16, for $793 million and Capitol American Financial, which rose 9 7/8 to 34 7/8 on Conseco’s $650 million buyout.

* AccuStaff and Career Horizons agreed to merge in a stock deal valued at some $1 billion. Career Horizons jumped 5 1/8 to 37, while AccuStaff lost three to 25.

* Chancellor Broadcasting agreed to buy 12 radio stations from Colfax Communications for $365 million in cash and working capital. Chancellor rose 1/4 to 37 1/2.

* Columbus McKinnon reached an agreement to acquire Spreckels Industries for $24 a share. Spreckels climbed 4 1/8 to 23 1/2 and Columbus was off 3/4 to 14.

* Advanced Medical rose 7/16 to 2 7/8 on news that it will buy IVAC Medical Systems in a cash deal worth $400 million.

* Olympic Financial soared 6 1/4 to 23 7/8 after it said that a potential buyer was interested in bidding for the company. It also reported that its chairman and chief executive had resigned.

In overseas trading, the Nikkei index in Tokyo declined 1.6%, while the DAX index in Frankfurt lost .11%.

The London market was closed for a holiday.

Market Roundup, D8