FINANCIAL MARKETS : Stocks Lower As Fed Meets; Bonds Quiet

Market Overview

Stocks ended broadly lower, as the hoped-for “Christmas” rally failed to materialize. Retail stocks led the market down, though selling wasn’t intense.

Against the backdrop of a Federal Reserve policy meeting, bond yields closed slightly higher. The Treasury’s auction of new two-year notes met with good demand.

Stocks

Analysts said the market continues to be victimized by tax-related year-end selling, as investors count up their gains and losses for the year.

The Dow industrials lost 10.06 points to 3,745.15, and most broader indexes also fell.

In the Nasdaq market of mostly smaller stocks, losing issues topped winners 14 to 10, and the composite index fell 4.52 points to 755.63.

Traders said small stocks’ losses show that tax-selling hasn’t yet run its course. Institutional investors also are rearranging their portfolios, and many may be selling out of losing stocks so that the names don’t appear on year-end statements to investors.

Some investors also may be nervously contemplating the potential for the Federal Reserve to raise short-term interest rates in 1994, if the economy stays strong. Fed policy makers met behind closed doors on Tuesday.

“There is a fair degree of pessimism about what the new year may hold,” said James Solloway at Argus Research in New York.

Still, some Wall Streeters remain hopeful that the customary Christmas rally will arrive, if late.

“Traditionalists have been waiting for the so-called Santa Claus rally that usually kicks in three days before the Christmas holiday,” said Robert Stovall of Stovall/Twenty-First Advisers in New York. But “seasonal strength has yet to materialize, which is a little disconcerting,” he said.

“I guess a good reason is that prices are so high,” Stovall said. “There’s no need for additional position-building at these rather elevated levels.”

In one measure of investors’ bearishness, the NYSE said Tuesday that “short” interest reached a record 1.24 billion shares as of Dec. 15, up from 1.23 billion in November.

Short interest is the number of borrowed shares sold and not yet repurchased. Generally, short sales represent bets that stock prices are heading lower.

Among Tuesday’s highlights:

* Retail stocks fell amid concerns about slow Christmas apparel sales. Research firm Johnson Redbook said department and chain store sales, while up from a year ago, were weaker than expected last week.

Ross Stores plunged 3 5/8 to 13 1/8 after saying its December sales have been disappointing. Other losers included May Department Stores, down 1 3/8 to 38 7/8; Nordstrom, off 1 1/2 to 31 3/4; J. C. Penney, down 1 1/2 to 51 1/2; Sears, down 1 1/4 to 53 5/8; and Gap Inc., off 5/8 to 39 1/4.

* Nike fell 1 1/4 to 43 3/8. The athletic shoe giant reported lower quarterly earnings Monday, and said recent orders also have been below year-ago results.

* Telecommunications stocks were hit by new profit-taking. Qualcomm dropped 1 1/8 to 56 3/4, General Instrument sank 1 1/4 to 52 3/4, Nextel Communications tumbled 1 1/8 to 34 5/8, America On-Line tumbled 3 1/4 to 56 and Peoples Choice TV gave up 1 3/4 to 29 1/2.

* CBS, which lost professional football broadcasting rights to rival bidder Fox, lost 5 1/8 to 291 3/4.

* A major loser on Nasdaq was software developer Banyan Systems, which collapsed 11 1/8 to 14 1/2 after saying fourth-quarter earnings will be below analysts’ forecasts.

Also sinking on a downbeat earnings preview was Greyhound Lines, off 1 3/8 to 11 1/2.

* Among the day’s winners, Ford shot up 2 to 64 3/4 after Merrill Lynch raised 1993 and 1994 earnings estimates for the auto giant. Chrysler added 1/4 to 54 1/8 and GM rose 5/8 to 54 7/8.

* Borden rose 1/2 to 19 1/8 in heavy trading amid reports that the company may be sold. Rumors suggested that Hanson PLC is considering a bid. Hanson eased 1/4 to 20 1/8.

* Pasadena-based environmental services firm Tetra Tech surged 1 5/8 to 18 1/4, but the firm said it knew no reason for the jump.

In foreign markets, Tokyo stocks fell again, with the Nikkei index off 88.81 points to finish at 17,315.34.

In London, the FTSE-100 dropped 22.5 points to 3,342.4. In Frankfurt, the DAX average inched up 4.77 points to 2,182.93.

Hong Kong gave ground, with the Hang Seng index down 290.50 points to 10,524.28. In Mexico City, the Bolsa index eased 11.29 points to 2,479.73.

Other Markets

Bond yields jumped early in the session on fears that interest in the Treasury’s auction of new two-year notes would be anemic.

But the auction went well, and rates closed marginally higher. The 30-year T-bond yield inched up to 6.31% from Monday’s 6.30%.

At the auction, the Treasury sold $17 billion in two-year notes at a high yield of 4.28%, up from 4.27% at the last auction on Nov. 22. It was the highest rate since two-year notes sold for 4.71% on Dec. 22, 1992.

Still, the bid-to-cover ratio, a measure of bids received to those accepted, was 2.78-to-1, up from an average of 2.70-to-1 in the 13 previous auctions.

Today the Treasury will offer $11 billion in five-year notes.

Analysts said the bond market’s nervousness also reflects the likelihood that Federal Reserve policy makers will ratchet interest rates higher next year, as the economy grows.

In other markets:

* Gold for current delivery settled at $387.90 an ounce, down $1.40 on New York’s Comex. Silver settled down 4.5 cents at $5.06.

* Light sweet crude oil eased 2 cents to $14.36 a barrel on the New York Merc.

Market Roundup, D8