Dow Off Nearly 59 Points Amid Fears of Fed Action

Stocks slid Tuesday after another strong economic report fanned inflation fears and boosted expectations that the Federal Reserve Board will slow the economy by raising interest rates.

The bond market, however, was surprisingly calm.

The Dow Jones industrial average sank as much as 101 points before rebounding to close off 58.92 points at 6,896.56.

Broader market indexes also lost anywhere between 0.5% and 1% for the day, and the market’s breadth was decidedly negative: Losers topped winners by nearly 2 to 1 on the New York Stock Exchange in moderate trading.

The Nasdaq composite index of mostly smaller stocks fell less than the Dow, losing 10.09 points, or 0.8%, to 1,269.34.

Stocks were hurt by the Commerce Department’s report that construction of new homes and apartments unexpectedly shot up 12.2% in February to the highest level in nearly three years.

The strong reading aggravated fears that although inflation has remained tame, the economy is growing so quickly that inflationary pressures could begin to grow.

Fed policymakers are scheduled to meet next Tuesday to decide whether the inflationary threat is serious enough to raise key short-term interest rates.

“This market is obsessed with March 25,” said Jack Shaughnessy, director of research at Advest Group.

He said the stock market appeared prepared for a marginal increase of a quarter-point in the Fed’s benchmark short-term rate, now 5.25%, but “there’s a fear there might be even more of an increase.”

Higher interest rates could hurt corporate profits and, thus, stock prices.

But in the bond market, where yields have already risen substantially in recent weeks, activity was muted Tuesday.

The yield on the 30-year Treasury bond edged up to 6.96% from 6.95% on Monday.

Meanwhile, municipal bonds were little changed as several states and municipalities sold a hefty $1.7 billion in new bonds.

In the biggest sale, California sold $525 million of general-obligation bonds in a competitive sale won by BA Securities Inc., the state’s first such sale since October.

The California bonds met strong demand, money managers said.

On Wall Street, with several major economic reports to come before the Fed meeting, analysts said volatility is only going to increase in the days ahead.

Today the consumer price index figures for February will be released.

“Until the Fed drops the other shoe or puts it back on its foot, this market is going to stay whippy,” said Alfred Goldman, technical analyst at A.G. Edwards & Sons.

Among Tuesday’s highlights:

* The shaky interest rate backdrop continued to weigh down banks and other financial services companies, which earn a smaller profit margin on loans as rates rise. Chase Manhattan fell 3 1/4 to 99 1/2 and J.P. Morgan lost 3 3/8 to 105.

* A number of credit card companies sank after the second report this week of weak company earnings due to a higher number of delinquencies. First Chicago, down 2 5/8 to 55 3/4, said it expects lower results tied to card losses.

On Monday, card issuer Advanta saw its stock plunge after warning of mounting credit losses. The stock sank 1 1/8 to 30 3/4 on Tuesday.

Among other big consumer lenders, Banc One fell 1 to 43 1/8 and First USA dropped 1 5/8 to 47 5/8.

* Utility stocks also were sharply lower. They too are sensitive to higher interest rates. The Dow utility index fell 1.4% to 221.56.

* The day’s profit taking also hit issues whose fortunes rely on the business cycle. Other Dow decliners included Boeing, down 2 3/4 to 103 3/4; DuPont, down 2 7/8 to 111; United Technologies, down 1 1/2 to 73 7/8; and Alcoa, down 1 3/8 to 73 7/8.

* Computer chip maker Micron Technology plunged 4 1/8 to 40 despite late Monday’s slightly better-than-expected earnings report.

Elsewhere in the tech sector, Compaq lost 2 1/4 to 74 7/8, Dell lost 3 1/8 to 64 3/4 and Advanced Micro Devices dropped 3 3/8 to 41 7/8.

Overseas, Tokyo’s Nikkei stock average rose 2.2%, Frankfurt’s DAX index fell 1.8%, and London’s FTSE-100 fell 0.4%.