STOCKS : Slide in Tokyo Behind Dow’s 38.02-Point Skid

The stock market fell sharply Wednesday, beset by new worries about Japanese stock prices and bank loan problems in this country.

The Dow Jones average of 30 industrials, which had climbed 65.97 points in the week’s first two sessions, dropped 38.02 points to 2,934.70.

Declining issues outnumbered advances by 5 to 2 on the New York Stock Exchange.

Big Board volume totaled 139.37 million shares at 4 p.m. EDT, against 157.18 million at the same point Tuesday.

Stock prices in Tokyo resumed their recent slide after a brief rally earlier in the week. The 225-share Nikkei average fell 622.29, or 2.59%, to 23,373.47. The index resumed its plunge today, falling 400 in early trading.

Analysts said Tuesday’s plunge in Tokyo helped touch off a sharp drop at the opening on Wall Street. As the session progressed, prices steadied and volume tapered off on the eve of the Independence Day holiday.

Markets will be open Friday, but activity that day is expected to be extremely light, with many business offices closing for the long weekend.

U.S. stocks have followed a zigzag course of late, registering a large measure of uncertainty about the outlook for interest rates and corporate profits.

Although the economy seems to have rebounded from the recession in the past couple of months, many analysts have warned that midyear earnings reports from many companies may well be disappointing.

Investors also had to contend with a new piece of unsettling news from the banking industry.

Security Pacific Corp. announced a widened reserve for loan losses and estimated sharply lower earnings for the second quarter. Its shares dropped 1 1/8 to 21 1/4.

BankAmerica Corp., the most active Big Board issue, fell 2 to 33 1/2.

Wells Fargo, by contrast, rallied 7/8 to 65 3/8. Its shares traded as high as a record 98 3/4 this spring before a company announcement of increased loan-loss reserves and lower estimated second-quarter profits sent them tumbling.

Although activity focused particularly on West Coast bank issues, other big bank stocks encountered selling as well.

J. P. Morgan lost 1 to 52, Chemical Banking slipped 5/8 to 20 5/8, Chase Manhattan dipped 1/4 to 17 and Manufacturers Hanover shed 3/8 to 21 1/8.

Other market highlights:

* Losers among the blue chips included Westinghouse Electric, down 1 1/4 at 27 1/8; Merck, down 2 1/8 at 117 1/4; American Express, down 1/2 at 22 1/8; Philip Morris, down 1/4 at 65 3/8, and Exxon, down 1 3/8 at 57 1/2.

* Tyco Toys, traded in the over-the-counter market, climbed 2 1/8 to 20 1/8. The company agreed to buy back stock from a family group including its chairman.

* Apple Computer rose 7/8 to 43 1/8 in OTC trading, while International Business Machines dropped 1 to 98 1/8. The two announced plans for joint ownership of a new computer-software company.

* Microsoft fell 4 1/8 to 64 on the prospect of stepped-up competition from that venture.

In European markets, the Financial Times 100 index in London skidded 12.3 points to 2,448.2. In Frankfurt, the 30-share DAX index rose 3.91 points to 1,614.41.

Credit

Bond prices moved higher in light preholiday trading, boosted by the sharply lower stock market and a weak housing report.

The Treasury’s bellwether 30-year bond was up 7/32 point from late Tuesday; its yield fell to 8.41% from 8.43%.

The market gained ground after a Commerce Department report showed that new-home sales dropped 3.3% in May. Elliott Platt, research director for Donaldson, Lufkin & Jenrette Securities Co., said bonds generally rally on word of economic weakness.

The federal funds rate, the interest on overnight loans between banks, fell to 5.25% from 5.75%.

Currency

The dollar fell from a 20-month high against the German mark but rose against the Japanese yen on fresh rumors of financial scandal in Tokyo.

Volume was light before the Independence Day holiday.

The dollar fell to 1.8295 marks in New York from Tuesday’s 1.8345, its highest level since November, 1989. But it rose to 139.55 yen from 138.75. And the British pound rose to $1.6060 from $1.6030.

The greenback was pushed down against the mark by signs of weakness in the economy as reflected in the new-home sales report.

Tokyo’s latest scandal rumors included talk that Mitsubishi Trust & Banking Corp. improperly compensated clients for investment losses. A Mitsubishi Trust spokesman denied the rumor.

Other dollar rates in New York, compared to Tuesday’s rates, included: 1.5793 Swiss francs, down from 1.5815; 6.2015 French francs, down from 6.2125; 1,361.00 Italian lire, down from 1,362.75, and 1.14225 Canadian dollars, down from 1.14255.

Commodities

Prices of precious metals futures skyrocketed after the Bush Administration expressed fears of a civil war in Yugoslavia.

On other commodity markets, energy futures slipped; grain and soybean futures were mixed, and meat and livestock futures were mixed.

Gold closed $2.10 to $2.30 higher on New York’s Commodity Exchange, with the contract for delivery in July at $370.20 an ounce. Silver settled 7.4 to 7.6 cents higher, with July at $4.448 an ounce.

Precious metals took off after Secretary of State James A. Baker III warned that the violence in Yugoslavia could escalate into civil war.

Oil prices retreated on the New York Mercantile Exchange amid signs that gasoline demand remains weak, even as millions of motorists hit the roads for the Fourth of July.

Light, sweet crude oil for delivery in August settled at $20.67 per barrel, down 15 cents.

Unleaded gasoline took a bigger hit, August contracts settling at 62.04 cents a gallon, down 1.40 cents.

On the Chicago Board of Trade, soybean futures prices ended mostly higher, while grain prices slipped in light preholiday trading.

At the close, wheat futures were 3 cents lower to 1 1/2 cent higher, with the contract for delivery in July at $2.65 1/2 a bushel; corn futures were 1 1/2 cents lower to 1 1/2 cents higher, with July at $2.34 1/4 a bushel; oats were 1 1/4 cents to 3/4 cent lower, with July at $1.13 a bushel, and soybeans were 3/4 cent lower to 2 1/2 cents higher, with July at $5.33 a bushel.

Live cattle settled 0.25 cent lower to 0.65 cent higher, with August at 72.42 cents a pound; feeder cattle settled 0.20 cent to 0.43 cent lower, with August at 88.45 cents a pound; live hogs were 0.07 cent to 0.33 cent higher, with July at 54.00 cents a pound, and frozen pork bellies were 1 cent lower to 0.80 cent higher, with July at 46.70 cents a pound.