Dow Decline Continues; Yields Rise to 4-Month High

The bond market seems determined to trip stocks’ bull market once again: Rising yields on Monday sent the Dow Jones industrials to their fourth straight loss.

The blue-chip Dow sank 35.79 points to 6,660.69, bringing its total decline from one week ago to 223 points, or 3.3%.

In the broad market, losers topped winners by nearly 2 to 1 on the New York Stock Exchange, and by 23 to 17 on Nasdaq.

But trading volume shrank sharply, which suggested there is no panic move afoot to dump stocks.

The NYSE composite index lost 2.73 points to 402.78; the Nasdaq composite index eased 11.02 points to 1,352.81.

The bond market had another bad day, despite two economic reports suggesting that the economy’s pace is moderate at best.

The bellwether 30-year Treasury bond yield rose from 6.88% on Friday to 6.94% at Monday’s close, the highest since last Sept. 24.

Bond traders said the market’s jitters were caused by expectations that additional economic reports due this week will show inflationary pressures building in the economy.

The focus today, for example, will be on the Labor Department’s employment cost index for the fourth quarter. Consensus estimates were that the index rose 0.9%.

Should it come in stronger than a 1.0% rise, analysts said, that could spark another sharp sell-off in bonds, on the assumption that the Federal Reserve Board may opt to tighten credit sooner than later to slow the economy and keep budding wage pressures from fueling an inflationary spiral.

Fed Chairman “Alan Greenspan made it clear six months ago that he paid attention” to the employment cost index, said Tony Riley, an economist at A. Gary Shilling & Co. “Everyone is looking at it because Greenspan is looking at it.”

On Wall Street, many stock analysts fear the market could tumble quickly if the 30-year T-bond yield tops the 7% mark.

“What’s significant is that at 7%, the yield on bonds is clearly competition for stocks,” said Alan Ackerman, market strategist at Fahnestock & Co.

Meanwhile, in other markets Monday, the streaking dollar hit a 31-month high against the German mark and gained versus other major currencies as traders speculated that the U.S. economy is indeed growing fast enough to warrant higher interest rates.

The dollar hit 1.650 marks in New York, then closed at 1.645 marks, up from 1.629 on Friday. The dollar also rose against the yen. (Investor Spotlight, D14.)

Among Monday’s highlights:

* IBM continued to lead the Dow lower, falling 4 3/4 to 145 3/4. Other Dow stocks sliding included Procter & Gamble, down 1 1/4 to 107 3/4; GE, down 1 1/2 to 100 3/8; and American Express, down 1 5/8 to 59 1/2.

* Lackluster quarterly results for Eli Lilly, off 2 1/4 to 80 3/8, paced a retreat among drug makers. American Home Products declined 1 3/4 to 59 3/4 and Pfizer lost 1 3/8 to 85 3/4.

* Computer networking issues continued to be hit by profit taking and concerns about earnings growth. Xylan lost 4 1/2 to 28 1/8, Ascend Communications dropped 3 to 74 3/4 and 3Com gave up 4 to 64 3/4.

* On the plus side, Walt Disney added 3/8 to 71 5/8. The company’s board raised the dividend 20%.

Overseas, Tokyo’s Nikkei-225 stock average slumped 2% in yet another broad retreat. Seoul stocks also were sharply lower again.