Dow Backs Down 12.46 on Profit Taking : Market Overview

Blue chip stocks retreated on profit taking and a better-than-expected report on wholesale prices. The Dow Jones industrial average fell back 12.46 point to finish the day at 3,385.12.

The dollar declined in hectic trading on world currency markets, registering its biggest losses against the Japanese yen.

Stocks

Analysts said there was some selling of stocks to take profits after Monday’s run-up, in which the Dow closed at an all-time high of 3,397.58. It was the 19th record close for the Dow this year, surpassing the high of 3,378.13 set on May 4.

The market was ripe for a retreat as the Dow approached the 3,400 level, considered a psychological barrier, analysts said. The Dow’s high level was a signal for some investors to sell stock to increase their cash holdings, said John Burnett, a senior vice president at Donaldson, Lufkin & Jenrette Securities Corp.

The market was overbought and pull-backs were to be expected, analysts said.

Declining issues outnumbered advances by about 4 to 3 on the New York Stock Exchange.

Big Board volume totaled 192.80 million shares, up from 155.74 million on Monday.

Declines in overseas markets similarly affected Wall Street sentiment.

In London, the Financial Times 100-share average ended 15.4 points lower at 2,722.4. Tokyo’s 225-share Nikkei average finished 99.56 points lower at 18,508.53, while in Frankfurt, the 30-share DAX average ended 1.87 points down at 1,751.16.

But the market was supported by a drop in interest rates in the bond market and by a promising inflation report.

The Labor Department reported that producer prices rose only 0.2% last month. Analysts had expected a 0.3% increase in the producer price index, which measures the price of goods before they reach consumers.

It was the third straight monthly report showing the price index increased just 0.2%. It indicated moderating inflation, a prime concern of bond investors.

“When people saw the market wasn’t rallying on the good news, they began to lighten up in general,” said Jack Solomon, a market analyst with Bear, Stearns & Co. “That it didn’t make it through 3,400 was also a factor.”

Among the market highlights:

- The Limited slipped 2 7/8 to 21 5/8 after the company reported flat first-quarter earnings. Disappointing results also hurt Nordstrom, which eased 1 1/4 to 32 3/4.

- Federal National Mortgage rose 1 3/8 to 65. Several analysts repeated buy ratings on Fannie Mae after the release of strong monthly data.

- Midlantic Bank added 1 3/4 to 10 1/4 after company officials met with analysts.

- Telefonos de Mexico led the NYSE most-active list, edged up 1/8 at 56 1/4 after a secondary offering of 13.5 million American shares.

- Dillard Department Stores added 3 3/8 to 123 1/4 after the retailer reported earnings.

- McDonnell Douglas was down for the second day in a row. After falling 3.7% Monday, the stock fell 2 at 53 1/4 in Tuesday’s session. The Pentagon said the aircraft company’s C-17 cargo plane has defective composite parts that may have to be replaced.

- On the Amex, Sbarro plunged 11 to close at 27 a share, on disappointing earnings and a negative analyst’s report.

Currency

Analysts said the dollar initially was weakened by the producer price index report.

The fresh data on wholesale prices “got the ball rolling on the downside for the dollar,” said Randolph Donney, research director at Pegasus Econometric Group in Hoboken, N.J.

Lower interest rates make dollar-denominated securities less valuable to investors.

The dollar sold off sharply against the yen, crashing through the important support level of 131.00 yen, which in turn spurred even more technical selling. The dollar settled in New York at 130.55 yen, down from 133.00 yen on Monday.

In New York, the dollar fell to 1.623 German marks, down from Monday’s 1.639

Credit

Treasury bond prices closed higher as the market reacted to good news on wholesale prices.

The price of the Treasury’s bellwether 30-year bond rose 5/16 point, or $3.13 per $1,000 in face amount. Its yield was 7.86%, down from 7.89% late Monday.

“The bond market was ecstatic over the PPI (producer price index) number,” said Anthony Chan, a senior economist at Barclays de Zoete Wedd Securities Inc.

It also gave the market hope that the Federal Reserve might move to lower interest rates to help the economic recovery.

But bond prices later slipped from their highs of the day. The fallback was due in part to a weekly survey of retail sales that suggested sales are starting to pick up, Chan said.

The federal funds rate, the interest on overnight loans between banks, fell to 3.688% from 3.813% late Monday.

Commodities

Soybean futures prices rose to an eight-month high after the government projected shrinking U.S. soybean stocks and a prominent meteorologist drew an analogy to the drought of 1988.

On other commodity markets, coffee futures rallied; oil futures fell; precious metals advanced, and livestock and meat futures were mixed.

Soybeans for May delivery rose 10.25 cents to $5.998 a bushel, the highest settlement of a near-term contract since Sept. 18.

Elsewhere, petroleum futures fell on the New York Mercantile Exchange, with light, sweet crude oil for June delivery falling 4 cents to $20.96 a barrel.

Precious metal futures fell modestly in quiet trading on New York’s Commodity Exchange. June gold fell $1.20 to $335.80 an ounce, while May silver edged down 0.3 cent to $4.089 an ounce.

Market Roundup, D6