FINANCIAL MARKETS : Stocks Decline; Yields Rise on Debt Worries

Blue chips and broad stock market indexes lost ground Monday, although transportation issues soared, pushing the Dow Jones transportation index to a new high.

Bond traders said a standstill in Washington over the federal debt ceiling made the Treasury market nervous, but the 30-year government bond yield rose just slightly, 0.02 percentage point to 6.29%.

With debate over the budget in limbo, the Treasury Department announced a postponement in the scheduled sales of $18 billion of three-year notes Tuesday and $13.5 billion of 10-year notes Wednesday. The government, which has said it could run out of money next week, must pay about $25 billion in interest to holders of securities by mid-November. If the debt ceiling impasse is not settled by then, the United States could default on its obligations for the first time in history.

But few players sold bonds on that possibility. “I don’t think anyone is of the opinion at this point they will default. There’s always a lot of brinkmanship. The odds favor the fact they will pass some kind of debt ceiling,” said Ted Ake, head government bond trader at Kemper Securities Inc. in Chicago. Ake and others said several debt-ceiling impasses between Congress and the President in the 1980s were resolved on time.

The Dow industrial average fell 11.56 points Monday from its all-time high Friday to 4,814.01. The blue-chip index hovered at slightly depressed levels all day, then took a big dip in the last 30 minutes of trading. Advancing issues had a thin lead on decliners on the New York Stock Exchange.

The declines came as a slew of corporate combinations fueled gains in shares of companies being acquired, including NetWorth Inc., up 6 7/8 to 41 3/8 and Pratt & Lambert United Inc., up 13 7/8 to 34 5/8.

But the mergers didn’t move the overall market. “Merger and acquisitions bother me,” said Arthur Micheletti, investment strategist at Bailard, Biehl & Kaiser in California, which manages $1 billion. Companies “tend to overpay and then they have to absorb the acquisition. When you see a lot, it’s usually toward the end of the bull market.”

One bright spot was transportation stocks, which rose after Roadway Services said it would sell its air transport division. Roadway’s shares surged 3 3/4 to 40. That, as well as gains in airline stocks, helped to push the Dow transportation index up about 1% to 2,010.45 points, breaking its Sept. 18 closing record of 2,000.39.

Among other market highlights:

* Technology stocks ended lower after Goldman Sachs dropped Microsoft from its priority list to its recommended list, predicting slower earnings growth in 1997.

Microsoft’s shares slid 2 1/8 to 97 3/8 on leading volume of 5.5 million shares in Nasdaq trading. Computer-related stocks were mixed for most of the session but turned negative late in the day. IBM lost 1 to 100 1/2, while Texas Instruments dropped 3 to 62 1/2. Micron Technology was off 3 3/4 to 64 1/4.

* Autodesk’s announcement that third-quarter earnings and revenue will fall below Wall Street’s estimates weighed on the tech group, traders said. The software company’s stock weakened 2 15/16 to 31 9/16.

* After last week’s run-up in Internet-related stocks, Netscape fell 5 1/4 to 90 and Netcom On-Line lost 3 to 66.

* Procter & Gamble was the biggest decliner in the Dow industrials. Its shares slipped 1 1/4 to 82 after Scott Paper Co. filed a suit against the company for its advertisements in Canada comparing its Bounty paper towels to Scott Paper’s competing product.

Overseas stock markets were mixed.