Dow Off 180, Yields Up on Wage, Growth Data

From Times Staff and Wire Reports

Stocks tumbled Thursday as bond yields rose after fresh economic data suggested a bad combo: slowing economic growth and faster wage growth.

But the selling on Wall Street didn’t have much urgency. Indeed, trading volume was modest on both the New York Stock Exchange and Nasdaq.

The Dow industrials dropped 180.78 points, or 1.7%, to 10,791.29, having rebounded late in the day from a loss of nearly 260 points.

The Nasdaq composite slid 2.4% to 2,640.01 points. But the index suffered a bigger drop Monday, when it fell 2.7%.


Markets were hit after the Labor Department said its employment cost index, considered the best measure of changes in wages and benefit costs, rose 1.1% in the second quarter, the steepest advance in eight years.

Meanwhile, the government also said Thursday that economic growth slowed sharply in the quarter.

The lowest unemployment rate in 29 years has raised fears that employers scrambling for workers will have to raise wages and therefore prices.

That, in turn, could spur the Federal Reserve to tighten credit sharply to slow the economy.


The bond market reacted Thursday to fears that the Fed, which meets Aug. 24, may raise its key short-term interest rate for the second time this summer.

Bond yields rose across the board, with the bellwether 30-year Treasury bond ending at a four-week high of 6.07%, up from 6.01% on Wednesday.

“The ECI really played into the biggest question on Wall Street: Will he or won’t he?” said Prudential Securities analyst Larry Wachtel, referring to Fed Chairman Alan Greenspan. “Every number that might convince the Fed to tighten rates is viewed as very dangerous to stocks and bonds.”

Also stoking inflation worries: Oil prices continue to rise, and the dollar continues to sink. A falling dollar could boost import prices.

The dollar fell to its lowest level in five months against the yen, at 115.40 yen. The euro rose to a two-month high of $1.073.

While the euro advanced, European stocks dove, tracking Wall Street’s morning slide. German stocks sank 3.4%, and the British market tumbled 2.9%.

Given all the bad news, traders said it wasn’t surprising that losers swamped winners by 22 to 8 on the NYSE and by 26 to 14 on Nasdaq.

Yet trading volume was just 770 million shares on the NYSE. Heavy selling would bring volume above 900 million shares, traders said.


And smaller stocks held up extraordinarily well: The Standard & Poor’s index of 600 smaller stocks eased just 0.5%.

The big question is how long the stock market can remain largely unruffled if bond yields continue to climb and the dollar continues to sink.

Among Thursday’s highlights:

* Financial stocks slid as interest rates rose. J.P. Morgan fell $3.38 to $130.63, Chase Manhattan slid $2.69 to $80.25, and Merrill Lynch fell $2.81 to $70.88.

* Many highflying tech stocks slumped. Highly valued stocks often are hit hard as market interest rates jump.

Yahoo fell $6 to $137, F5 Networks dove $6.88 to $50.75, America Online lost $4 to $98.75, Microsoft fell $3.06 to $86.94, and Emulex lost $6 to $108.75.

But some tech and Internet issues bucked the trend. Qlogic jumped $3.88 to $157.44, and EToys surged $4.56 to $42.81.

* Industrial stocks fell on concerns about slower economic growth. GE gave up $2 to $112, and Georgia-Pacific dropped $2.56 to $46.75.


* The Dow was supported by Procter & Gamble, up $2 to $88.13, and 3M, up $1.69 to $90.81. Both companies reported stronger-than-expected quarterly earnings.

* Drug firm Glaxo Wellcome, which said it will miss its 1999 target of double-digit earnings growth, sank $4.13 to $51.19.

Also, Waste Management tumbled $5.50 to $25.94 after saying its second-quarter earnings will miss estimates.

* Energy stocks were mixed despite the fresh advance in oil prices. Exxon fell $1.06 to $77.88, and Noble Affiliates rose $1.50 to $29.56.

Market Roundup, C6