Hashimoto Threat Triggers Dow Plunge

Investors who were waiting for an excuse to take profits in U.S. stocks finally got one Monday, as puzzling comments by Japan’s prime minister helped trigger a sharp plunge on Wall Street.

The Dow Jones industrial average tumbled 192.25 points, or 2.5%, from Friday’s record close to end at 7,604.26. The market overall also finished broadly lower.

Most traders pinned the blame for the abrupt sell-off on Japanese Prime Minister Ryutaro Hashimoto, who appeared to threaten that Japan might begin to dump its massive U.S. Treasury bond holdings and buy gold instead.

But some analysts questioned how significant Hashimoto’s comments were--considering that neither the bond market nor the dollar showed much reaction, although his remarks came late in the day in New York.

More likely, many Wall Streeters said, was that Hashimoto exacerbated what was already a weak day in the stock market, as blue-chip stocks finally pulled back after a spectacular run over the last 2 1/2 months.

The Dow had rocketed 1,405 points, or 22%, between April 14 and Friday, as the economy’s slowing pace sparked a steep decline in bond yields and all but eliminated the need for the Federal Reserve Board to continue tightening credit.

Indeed, despite the severity of the Dow’s decline Monday, it wiped out only two weeks’ worth of gains: At Monday’s close, the Dow was just above its level on June 11.

In nominal terms, the 192-point drop was the second-largest in history, after the 508-point decline on Oct. 19, 1987.

But because of the Dow’s heights, point changes mean far less than they used to. In percentage terms, Monday’s 2.5% drop was significant but hardly one for the record books. It was the equivalent of a $100 stock falling by $2.50 a share.

Broader stock indexes declined far less. The Standard & Poor’s 500 index dropped 20.08 points, or 2.2%, to 878.62. The Russell 2,000 index of smaller stocks lost just 2.78 points, or 0.7%, to 390.82.

Trading activity was only moderate at 498 million shares on the New York Stock Exchange, where losers outnumbered winners by about 18 to 8.

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Stocks were posting fairly modest losses until early afternoon, when Japan’s Hashimoto, in a question-and-answer session at Columbia University in New York, seemed to suggest Japan’s central bank might sell its U.S. Treasury securities if the United States can’t keep currency exchange rates stable.

“On several occasions we’ve had this feeling, to try and sell off U.S. Treasury bills and bonds. For example, when I was fighting [former U.S. Trade Representative] Mickey Kantor over automobiles and automobile issues, or when faced with currency volatility,” Hashimoto said in Japanese, according to a translation provided by Bloomberg News.

“Our American friends were paying little attention to maintaining the value of the U.S. dollar as an international key currency, and we were tempted to sell off,” Hashimoto said. He then said that he hoped the U.S. will engage “in efforts and cooperation to maintain exchange stability so that we will not succumb to this temptation” to sell in the future.

As the comments hit news wires, the Dow, which was off about 50 points at midday, went into a tailspin as bond yields suddenly blipped higher after a trendless day.

Yet the bond market posted only modest losses by the close, with the 30-year Treasury bond yield ending at 6.70%, up from 6.66% on Friday, which was the lowest since late February.

What’s more, gold futures added less than $2 an ounce for the day. And the dollar, which might be expected to tank if currency traders really believed the Japanese might dump U.S. assets, actually finished slightly higher, at 114.95 yen. Nor was there much movement in the dollar early today in Tokyo.

“Talk about an overdone market looking for a reason to go down!” said James Bianco, chief of research at Arbor Trading Group in Barrington, Ill., referring to the stock market’s performance Monday.

“Many traders had just been waiting for the first clue of insistent selling” to take profits, said Eugene Peroni, director of technical research at Janney Montgomery Scott in Philadelphia. He noted that even the news of some large corporate takeover deals failed to spur much enthusiasm in the morning.

“There are some itchy trigger fingers at the mutual funds,” said David Rolfe, chief investment officer at Wedgewood Partners in St. Louis. “You may already be up 15% to 20% this quarter and looking ahead to the June 30 performance deadline; it seemed like a ripe day for profit-taking,” Rolfe added.

He said he is nervous about the near-term outlook for stocks since so much good news--low inflation, falling interest rates, a slowing economy and so on--has already been built into stock prices. A bit of bad news could cause a stampede, he worries.

Even so, many analysts say stocks’ fundamentals still are so strong that investors by and large are unlikely to stay away from the market for very long.

Among Monday’s highlights:

* Every one of the 30 stocks in the Dow fell. AlliedSignal lost 1 3/4 to 82, American Express sank 2 3/4 to 75 7/8, Boeing gave up 2 1/4 to 54 5/8 and Procter & Gamble dropped 3 1/4 to 136 7/8.

* Tobacco stocks fell for a second day after the announcement late Friday of the proposed liability settlement between the tobacco industry and U.S. states. Philip Morris lost 2 3/4 to 42 3/4, RJR Nabisco dropped 1 1/2 to 33 1/2 and UST finished off 1 to 28.

* Pennzoil rocketed 17 3/4 to 77 3/8 after Union Pacific Resources made an unsolicited $4.2-billion bid for the rival energy concern. But the bid failed to spur a rally in energy stocks, most of which declined.

* Most tech stocks lost ground even after Compaq Computer surprised traders with a bid for Tandem Computers. Tandem jumped 5 3/4 to 20 3/4; Compaq slid 2 7/8 to 103 7/8.

* PacifiCare Health lost 11/16 to 81. After the market closed, the HMO said it expects second-quarter earnings to fall below analysts’ estimates because of slower sales in California and several other markets.

In foreign trading, Toronto stocks fell with the Dow, losing 1.1%, but the Mexico City market was off only slightly.

Market Roundup, D14

Dow’s 10-biggest one-day point drops. D18