FINANCIAL MARKETS : STOCKS : Dow Jumps 40 but Ends the Day Off 2.47

Blue chip stocks ended slightly lower Friday after a “crazy” day of trading, with investors whipsawed by the fast-paced Soviet effort to negotiate an end to the Persian Gulf War.

The Dow Jones industrial average, which at one time was up more than 40 points, ended with a loss of 2.47 points at 2,889.36. Gaining issues outpaced losers in nationwide trading of New York Stock Exchange-listed stocks, 820 to 715.

For the week, the Dow fell 45.29.

Big Board volume rose to 218.76 million shares from 180.77 million Thursday.

The stock market rallied Friday morning when President Bush set an ultimatum of noon today for Iraq to begin unconditionally withdrawing from Kuwait. Prices peaked when the Soviet Union said Iraq had agreed to an immediate withdrawal.

But as it became clear that the withdrawal was part of a six-point plan, investors took profits.

“They come in with these five other things that you know the White House is not going to go along with,” said Alice Sadlo, a vice president at McDonald and Co.

“This is crazy,” she said of the market’s gyrations.

Iraq later said it supported a Soviet peace plan but denounced President Bush as an “enemy of God.”

Analysts said investors responded favorably to the President’s hard-line position, apparently believing that the war was nearing a conclusive stage, with the U.S.-led coalition in a strong position.

But many market participants were evidently reluctant to carry big commitments into what loomed as a pivotal weekend in the war.

“A lot is going to be happening over the weekend,” said Ladenburg Thalmann’s president, Jon Groveman. “Traders want to flatten out their positions.”

“We have this Saturday deadline, and that makes people nervous,” said Jeffrey Kaminsky, director of institutional sales at Mabon Nugent and Co.

He said the market’s cautious mood was reflected in gains among such issues as drug and food companies. “If you’re reluctant but concerned you’re under-invested, you would buy recession-proof stocks.”

Among market highlights:

* Philip Morris gained 1 1/2 to 67 3/4. Morgan Stanley raised its estimates, and First Boston repeated a buy rating.

* RJR Nabisco, which is trading on a when-issued basis, rose 1/2 to 7 7/8, General Mills rose 1 1/4 to 53 1/4 and Pepsico added 1 to 33 1/4.

* Some defense contractors fell on the possibility of a resolution of the Gulf War. Raytheon lost 3/4 to 75, Martin Marietta fell 1 1/4 to 48 1/2 and McDonnell Douglas lost 2 to 41 1/2.

* Amgen continued to rally, adding 6 1/4 to 101 3/4, after the company announced higher-than-expected prices for its newly approved cancer drug Neupogen.

* HomeFed Corp. fell 1 3/8 to 5 after the company said a continuing deterioration in its real estate portfolio forced a sizable increase in its fourth-quarter loan-loss provisions.

Tokyo stocks slumped following strong gains earlier this month as investors clung to the sidelines. The key 225-share Nikkei average dropped 121.56 points to 25,902.81.

In London, stocks closed slightly higher, with the Financial Times 100-share index up 1.9 points at 2,314.3.

Prices of German stocks ended firmer after a session fraught with jitters about chances of peace in the Gulf region. The DAX blue chip index closed up 16.20 points, or 1.03%, at 1,582.52.

Credit

Most government bond prices closed unchanged or lower as the market digested new issues and remained concerned that the Federal Reserve won’t lower interest rates again any time soon.

The Treasury’s bellwether 30-year bond closed unchanged from Thursday, its yield remaining at 8.06%.

The market was having trouble absorbing a large supply of government securities issued in the past two weeks. Buying among small investors remained weak due to uncertainty over the war and the economy, said Steven R. Ricchiuto, chief economist of Barclays de Zoete Wedd Securities Inc.

“There was very, very little (small-investor) interest in the auctions this week,” Ricchiuto said, which left securities firms overburdened with new bonds. Oversupply tends to depress prices.

The federal funds rate, the interest on overnight loans between banks, was quoted at 6.0%, down from 6.675% late Thursday.

Currency

The dollar strengthened on world currency markets after President Bush’s ultimatum to the Iraqis.

“The prospects for a long, drawn-out war and the negative impact it would have on the U.S. economy is diminished,” said Tom Benfer, senior market representative in foreign exchange at Bank of Montreal in New York.

Technical factors also boosted the dollar. It pushed through 1.5000 German marks in U.S. dealings around midday, a barrier it had struggled for a month to surpass.

In New York, the dollar settled at 1.5055 German marks late Friday, up from late Thursday’s 1.4925. The British pound fell to $1.9445, down from Thursday’s $1.9568. The dollar settled at 132.15 Japanese yen, up from late Thursday’s 131.27.

Other late dollar rates in New York, compared to late Thursday’s rates, included: 1.2925 Swiss francs, up from 1.2745; 5.1225 French francs, up from 5.0755; 1,127.50 Italian lire, up from 1,117.25, and 1.1524 Canadian dollars, up from 1.1495.

Commodities

Cotton for May and July deliveries jumped the 2-cent-a-pound daily limit on the New York Cotton Exchange in buying driven mainly by technical factors. Cotton has been supported in recent weeks by relatively tight supplies and California water restrictions that will sharply lower production there.

Cotton futures were 0.55 cent to 2 cents higher, with March at 86.70 cents a pound.

Grain and soybean futures prices ended mostly lower on the Chicago Board of Trade in selling prompted by sketchy forecasts of rain in southern Brazil and uncertainty about Gulf War developments.

Cattle futures ended narrowly mixed, and pork futures rallied ahead of the Agriculture Department’s monthly cold-storage report, which showed 48.8 million pounds of pork bellies in commercial freezers as of Jan. 31. The number was near market expectations.

Market Roundup, D6