Stocks’ Slide is Broad, but Not So Deep

The broad stock market suffered with blue-chip shares on Friday, but key indexes of small- and mid-sized stocks held up relatively well despite the Dow industrial index’s plunge.

The Dow plummeted 247.37 points, or 3.1%, to 7,694.66--its lowest since June 30--but the Russell 2,000 index of smaller stocks lost just 3.29 points, or 0.8%, to 408.58.

And the market’s breadth wasn’t horrendous, analysts said: Falling stocks outnumbered winners by 22 to 7 on the New York Stock Exchange in moderate trading volume of 538 million shares.

In contrast, losers had swamped winners by 25 to 5 on Aug. 8, when the Dow slumped 157 points.

In other markets Friday, bond yields closed mostly flat. But the dollar was troubled, sinking further against the German mark and other European currencies.

Friday’s blue-chip tumble was led by Gillette, which sank $4.19 to $85.88 after warning of slightly weaker-than-expected earnings growth this year and in 1998.

That helped pull other multinational consumer-products stocks--the so-called Nifty Fifty issues that have been investor favorites since 1994--sharply lower as well. The Morgan Stanley index of major consumer-products shares sank 3%.

Coca-Cola, which a week earlier had warned of disappointing earnings this quarter, lost $1.31 to $58.75.

“Coke and Gillette are fine companies, but they’re selling at outlandish [price-to-earnings] multiples,” said Gene Grandone, director of investment counseling at Northern Trust Co. in Chicago, with about $150 billion under management. “Investors have been looking for reasons to sell. Many of them decided to do it [Friday].”

Moreover, the blue chips’ losses were exacerbated by technical trading games, including computerized “program” trading that pits stocks against stock index futures and options.

Seven computerized “buy” programs and nine “sell’ programs buffeted stocks Friday, according to Birinyi Associates, a market research firm in Greenwich, Conn. In the last half hour of trading,

two “sell” programs accounted for a 125-point drop in the Dow.

“It was on the ugly side,” said Art Hogan, a senior trader at Morgan Stanley, Dean Witter. “But most of it’s program trading, investors selling futures, and that drives down equities.”

Elsewhere, the dollar’s latest slide continued against European currencies, and that may have upset some foreign investors. As the dollar declines it devalues U.S. assets held by foreigners.

The dollar fell against major currencies amid speculation that Germany’s central bank may raise interest rates soon to defend the mark.

“The Bundesbank is obviously concerned about the mark’s weakness,” said Dom Presa, vice president of foreign exchange trading at Dresdner Bank.

Higher German interest rates would make mark-denominated deposits and bonds more attractive.

The mark had declined to 1.87 to the dollar recently--weakest since 1991--but has strengthened in recent days on fears that the Bundesbank will act.

On Friday the dollar sank to 1.820 marks in New York from 1.841 on Thursday. The dollar also eased to 117.90 Japanese yen from 117.94.

One market that wasn’t ruffled on Friday was the bond market: Long-term yields were mostly unchanged, with the 30-year Treasury bond yield holding at 6.54%.

Short-term yields actually fell, as some investors fleeing stocks ran for cover in Treasury bills.

The yield on 3-month T-bills fell to 5.25% from 5.33% on Thursday.

“The short end is getting a little extra play,” said David Capurro of Franklin Resources in San Mateo, Calif. “We’re seeing a little bit of a flight out of the volatility of the equity markets.”

In addition, most bond investors expect the Federal Reserve Board to leave interest rates unchanged when it meets on Tuesday.

Whether the Fed’s stance can help stocks in the short term remains to be seen.

The Dow’s net loss of 336.56 points for the week was the worst in history, though in percentage terms, the sell-off was not among the top 10 weekly declines.

Among Friday’s highlights:

* Among consumer blue chips, Procter & Gamble sank $7.88 to $136.56, Merck lost $2.44 to $90.88, 3M lost $3.25 to $91.50, Warner-Lambert dove $4.69 to $128 and Colgate-Palmolive was off $4.94 to $65.25.

* Among leading tech shares, Intel dropped $3.75 to $92.13 and Microsoft was off $3.38 to $132.88.

* Other movers included Pep Boys, off $6.06 to $27 after reporting weak second-quarter earnings, and ITT, off $1.06 to $62.81 after it rejected a sweetened $11.5-billion hostile takeover offer from Hilton Hotels.

* Of the few gainers, Geron soared $7.50 to $14 after the company said it cloned an enzyme that could lead to new cancer treatments.

Market Roundup, D4

MAIN STORY: A1

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The Correction, So Far

Blue-chip stocks have led the market’s pullback over the last seven sessions, while smaller stocks have held up far better. How major stock indexes fared on Friday, and their declines so far versus their recent record highs:

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Friday Friday Pct. Pct. drop Index close change change from peak Dow industrials 7,694.66 -247.37 -3.1% -6.8% S&P; 500 900.81 -23.96 -2.6 -6.2 NYSE composite 469.10 -10.56 -2.2 -5.6 Nasdaq composite 1,562.03 -24.66 -1.6 -4.2 Dow transports 2,864.96 -30.57 -1.1 -4.8 S&P; mid-cap 307.36 -3.15 -1.0 -3.7 S&P; small-cap 169.93 -1.58 -0.9 -2.9 Russell 2,000 408.58 -3.29 -0.8 -2.9

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Source: Times research