FINANCIAL MARKETS : Dow Falls 3.5 Amid Upbeat Reports : Market Overview

Stocks closed mixed as investors weighed the latest upbeat reports on the economy.

Government bond yields rose as traders braced for disappointing news in the Treasury’s upcoming quarterly refunding announcement.

Stocks

The market was ripe for a weak opening after U.S. stocks lost ground overnight in European trading, and prices seesawed in a relatively narrow band for most of the session.

The Dow Jones average ended with a small loss of 3.51 points to close at 3,328.67. Volume on the New York Stock Exchange was active at 271.56 million shares, against Monday’s 238.57 million. Advancing issues outnumbered declining ones by about 5 to 4 on the NYSE.

A widespread selloff in the shares of drug companies tempered the advance in the blue chips. Four of the 10 most active NYSE stocks were drug issues.

The NASDAQ gained 3.34 points to end at 705.11. The over-the-counter stocks got a lift from rebounding cellular telephone stocks.

A pair of favorable economic reports did little to entice investors. The government reported that its index of leading indicators jumped a better than expected 1.9% in December, while sales of new homes shot up 6.3% in the same month for the best showing in three months.

“There’s a lot of positive information on the economy,” said James Schroeder, an analyst at MMS International in Chicago.

“But people want to see if it translates into jobs,” he said, noting that traders are anxiously awaiting the January unemployment report, due out Friday.

Several analysts said the market was due for a breather after the Dow’s climb of nearly 40 points in the last four sessions. Traders were selectively taking profits, but fund managers continued to look for points of entry into the market as money continues to flow into mutual funds at record levels.

Drug stocks were again shunned as a Salomon downgrade refocused worries about the impact of the Clinton Administration’s health care reforms on the profits of drug companies.

- Within the drug group, Merck lost 1 1/8 to 37 3/4, Glaxo sank 1 1/8 to 18 1/2, Bristol-Myers eased 1 3/8 to 58 1/8, Johnson & Johnson fell 1/2 to 43 1/2, Abbott Labs lost 1 3/8 to 26 1/8, Schering Plough was down 1 1/2 to 58 5/8, and Pfizer fell 2 7/8 to 63 1/8.

- Shares in cellular telephone companies gained sharply on reports minimizing the possible health risks said to be linked to them.

Cellular phone stocks began recovering after charges that using the phones can cause cancer. Motorola was up 1/2 at 54 1/4. And in over-the-counter trading, McCaw Communications rose 1 7/8 to 35 1/4, while LIN Broadcasting jumped 2 1/8 to 82 3/4.

- Elsewhere on the Big Board, Leslie Fay, which said accounting errors may wipe out 1992 profit, was down 1/2 to 6 7/8; RJR Nabisco fell 1/4 to 8 5/8; American Express, whose chairman resigned over the weekend amid a board shake-up, was unchanged at 24 5/8, and General Motors, which said its special charges will result in a whopping $23-billion loss for 1992, fell 3/4 to 37 3/8.

Overseas, London’s Financial Times 100-share average closed 17.2 points lower at 2,834.4. In Tokyo, the 225-share Nikkei average advanced 52.67 points to 17,186.31, and Frankfurt’s 30-share DAX average finished at 1,583.09, a fall of 2.07 points.

In Mexico City, the Bolsa index suffered another big hit, falling 40.17 points, or 2.4%, to 1,624.15 on fears that the nation’s rising trade deficit will force short-term interest rates higher.

CREDIT The bond market decline was also a reaction to overnight activity in Tokyo, where traders sold fixed-income securities after the Bank of Japan failed to ease interest rates. Lower interest rates would have helped the value of existing bonds.

The yield on the Treasury’s bellwether 30-year bond rose to 7.24% from 7.20% late Monday, pushing its price, which moves inversely to the yield, down 17/32 point, or $5.31 per $1,000 in face amount.

Many market participants in recent weeks have expected the Treasury to announce today that it would issue fewer long-term bonds during its quarterly auctions, which finance the federal deficit.

Bond prices have gained because reduced supply would make existing long-term securities worth more. Proponents say the move, which involves shifting the auction mix to shorter-term bonds, would save the federal government billions of dollars in annual interest payments because today’s long-term yields are high relative to short-term rates.

However, in recent days bonds have been hurt by signals that the Treasury will not meet market expectations.

The federal funds rate, the interest on overnight loans between banks, held at late Monday’s 3.125%.

Currency

The dollar rose against most major currencies as the economic news strengthened in the United States and continued to show weakness in Europe.

In late trading in New York, the dollar was at 124.65 Japanese yen, down from 125.05 yen Monday. It also rose to 1.642 German marks, up from 1.637 marks the day before.

The British pound fell in New York to $1.444, from Monday’s $1.460.

Commodities

Doubts that OPEC will be able to agree to a production cut at its meeting later this month helped depress oil prices. Lower prices for home heating oil also contributed to the broader market’s drop.

Light, sweet crude oil for delivery in March settled at $20.00 per barrel, down 31 cents, at the New York Mercantile Exchange.

Meanwhile, gold rose 10 cents to $330.40 an ounce on New York’s Commodity Exchange. Silver slipped 0.3 cent to $3.672 an ounce.

Market Roundup, D6