Dow Off 27 in Late Selling; IBM, Trade Report Cited

A late afternoon selling spree squelched a brief rally in stock prices Tuesday, capping a nervous, low-volume session that some Wall Street strategists called typical of the post-crash market.

“People are still very worried, especially the professional investor community,” said Philip C. Puccio, senior vice president at Dillon Read & Co. “The volatility is just horrendous, and the lack of volume is depressing. So we’re kind of in a holding pattern.”

The Dow Jones index of 30 industrials declined sharply at the opening, rose slightly by mid-afternoon and slid again in the last hour of trading, which was characterized by a round of arbitrage-related program selling. The index ended the session down 27.52 to 1,936.34.

Broader market indexes also fell in the late afternoon, but the overall market result was mixed. In New York Stock Exchange composite trading, the number of gaining and losing issues were about even. Big Board volume totaled 153.55 million shares, up from 135.10 million Monday.

IBM Tumbles 6 to 111 3/4

Stock analysts said the initial selloff was incited by Japan’s December trade report, which showed the surplus with the United States had widened. The report dampened investor enthusiasm that had arisen from a large drop in the November U.S. trade deficit reported last Friday.

Another selling catalyst was the earnings report of International Business Machines. Despite a 50% increase in fourth-quarter earnings by the computer giant, investors apparently feared the jump was caused largely by the temporary impact of tax breaks and the dollar’s deflated value.

IBM, an important component of the Dow Jones index, tumbled 6 to 111 3/4 in heavy trading and dragged other stocks down. Market analysts described it as a classic bear-market overreaction that has typified trading in the aftermath of the Oct. 19 collapse.

“IBM was on everyone’s lips today, and that is the thing that really hurt this market,” said Bill Lord, a trader with Shearson Lehman Bros.

Joseph Barthel, analyst at Butcher & Singer Inc., said the low volume of trading also reflected an underlying apathy that likely would persist for some time.

“That is characteristic of bear markets,” he said. “It also shows a number of forces are now gone. There are relatively few margin buyers and extremely limited foreign participation.”

The news that Japan’s $4.9-billion December surplus with the United States was up from $4.1 billion in November did nothing to change the final mood of the market, traders said. Concerned investors took the report as a harbinger of disturbing U.S. trade figures to come. Friday’s report on the U.S. deficit for November was better than expected at $13.2 billion.

“The Japanese surplus raised the question if our trade figure was just a one-month aberration,” said Shearson’s Lord.

The IBM announcement triggered selling of computer stocks. Digital Equipment fell 1 3/4 to 119 3/4, continuing a week-long slump. Hewlett-Packard fell 3/4 to 55 1/8, Cray dropped 1 to 67 3/8 and Unisys retreated 1 1/2 to 32 3/8. A notable exception was Honeywell, which gained 3/8 to 59. The company reported favorable fourth-quarter earnings, contrasted with a year-earlier loss.

At least two analysts said profit margins at Compaq are likely to shrink in 1988, and they recommended that investors avoid the stock. It fell 3 1/8 to 48 7/8.

Among the prominent blue chip losers, International Paper fell 1 7/8 to 38, Du Pont fell 1 to 80, Procter & Gamble fell 1 to 85 1/8 and General Motors fell 1 3/8 to 63.

In takeover-related trading, Santa Fe Southern Pacific rose 1/2 to 44 7/8. Henley Group Inc. intensified efforts to acquire the railroad. Share prices in London finished lower as investors reacted to an early weak trend on Wall Street. The Financial Times 100-share index fell 22 points to close at 1,768.0.

On the Tokyo Stock Exchange, the Nikkei 225 share-index dipped 12.03 points Tuesday, closing at 22,898.17.