Bank and Tech Sell-Off Pulls Down Blue Chips

A late-afternoon sell-off drove the Dow Jones industrial average to its worst loss in six weeks Tuesday as investors sought to lock in gains on the holiday week’s last full day of trading.

Despite bond yields falling to a fresh four-year low during the day, the Dow sank 127.54 points, or 1.6%, to 7,691.77 after losing about 100 points in the final hour. Investors, seeking to protect against unexpected jolts out of Asia, dumped bank and technology stocks that are considered to have the highest exposure to the region.

With the stock market closed on Christmas and shutting down early on Wednesday and Friday, many senior traders are expected to take all three days off, said Ned Riley, chief investment officer at BankBoston. That leaves the market vulnerable to sharp swings on low volume. More than 516 million shares traded, about 90% of average volume.

“People don’t want to carry a big position over the holiday and be subject to the vagaries of another Asia crisis or any other crisis that might develop,” Riley said.

The tech-heavy Nasdaq index gave up 22.15 points, or 2.68%, to 1,509.91. Smaller stocks, in comparison, fared better as the Russell 2,000 was off only 0.85 point, or 0.2%, at 422.03.

Twenty-eight of the 30 Dow stocks declined as only Travelers Group and International Paper eked out small gains.

Declining issues outnumbered advancers by an 8-to-7 margin on the New York Stock Exchange.

The yield on the bellwether 30-year Treasury bond closed at 5.87%, unchanged from Monday, its lowest level since Oct. 20, 1993, after falling as low as 5.85% intraday.

Bonds shook off a government report showing that big-ticket goods rose 4.8% last month, far more than the 0.6% analysts expected. But without a surge in demand for aircraft and transportation products, orders fell 0.2%.

In its monthly auction, the Treasury Department sold $11 billion in new debt. It unloaded the five-year notes at a yield of 5.685%. Demand was above the average at the last 10 monthly five-year note auctions, with more than $2,600 bid for every $1,000 of securities sold.

Also, the government said gross domestic product rose at a 3.1% annual pace in the third quarter, less than the 3.3% rate originally estimated. The University of Michigan, meanwhile, said its final index of consumer sentiment for December fell to 102.1 from 107.2 last month.

The market held up fairly well for most of the day despite another panicky sell-off in South Korea.

Investors initially drew some confidence from European markets, which rose despite a record 7.5% plunge by South Korea’s main stock index.

But with Japanese financial markets closed on Tuesday in honor of the emperor’s birthday, traders may have grown wary of waking up to a steep decline in Tokyo today.

South Korean share prices plunged amid news that two U.S. ratings agencies had downgraded that country’s bond ratings to junk status, making it practically impossible for South Korea to borrow overseas.

Economists have warned that South Korea could face bankruptcy unless emergency foreign loans are obtained to meet huge short-term debts due in coming weeks. Early this month, South Korea agreed to a $57-billion loan package from the International Monetary Fund to bail out its economy. As part of that package, the World Bank approved a $3-billion loan to South Korea after markets closed Tuesday, acting with unusual speed.

Among Tuesday’s market highlights:

* Technology stocks were hit hard amid renewed fears about Asian economies. Cisco Systems slumped $3.25 to $51.38, Dell Computer lost $1.13 to $80.5, IBM fell $3.94 to $98.63, Hewlett-Packard dropped $2.50 to $60.63 and Intel Corp. declined $1.25 to $70.19. Microsoft, which accused the Justice Department of making a farce of its court fight over the company’s Internet browser software, shed $3.69 to $123.31.

* Lattice Semiconductor tumbled $8.38 to $45.88 after the maker of high-speed programmable-logic devices said demand in South Korea will slow for the next six to nine months. At least two analysts cut their earnings estimates.

* Remedy sank $11.31 to $21.56. Investors worried that earnings for the help-desk software developer will be hurt by IBM’s purchase of rival Software Artistry.

* Financial stocks dropped as investors worried that troubled Asian companies may default on short-term loans. J.P. Morgan fell for the fourth-straight session, losing $4 to $111.88. Citicorp lost $4.19 to $123 and Chase Manhattan fell $1.38 to $105.44.

* Oil-service shares were roughed up. Halliburton fell $2.19 to $46.06, Diamond Offshore Drilling lost $2.38 to $42.63, Tidewater declined $3.69 to $48.31, Ensco International dropped $1.75 to $28.69 and Global Marine fell $1.56 to $22.06.

On overseas exchanges, London’s FTSE-100 index closed higher for the first time in five sessions, closing up 31.6 points, or 0.63%, at 5,049.80.

On commodity exchanges, silver prices surged to a new eight-year high after a further large drawdown in silver inventories in Comex warehouses prompted more buying by commodities funds, traders said.

Comex March silver ended up 21.8 cents at $6.24 an ounce after seeing a new contract high at $6.25 an ounce.

Gold prices rose $3.20 an ounce to close at $294.30 in New York.