Blue Chips Fall, Putting End to Worst Month in Seven Years

Big and small diverged again Friday as blue-chip stocks slid into the close of a difficult month and smaller-company shares pushed further into record territory.

But Asian stock markets tumbled across the board, battered by continuing worries about the stability of some of Asia’s currencies. Share prices plunged in Hong Kong for a second day, with the key index shedding 5% on the regional currency trouble and fears of a rise in local interest rates.

The Dow Jones industrial average fell 72.01 points to 7,622.42, but only after erasing an early 87-point slide and then turning south again.

Technology and smaller-company shares posted modest gains, however, lifting the Nasdaq market and boosting the Russell 2,000 index of secondary stocks 1.84 points to 423.43, its third consecutive closing high, bringing its monthly gain to 2.2%.

For the week, the Dow lost 265.49 points, leaving the battered blue-chip index about 635 points, or 7.7%, below its record close of 8,259.31, set Aug. 6, and pushing it closer to the 10% decline commonly known as a “correction.”

Stocks were pressured throughout Friday’s trading by the bond market, where interest rates rose after another flurry of robust economic reports undermining hopes for steady, noninflationary growth.

U.S. bonds fell for the first time in four days after reports on home sales and Chicago-area manufacturing suggested the economy may be strong enough to prompt the Federal Reserve Board to raise interest rates again soon.

“This economy is growing faster than people want to think it is,” said William Dawson of Federated Investors in Pittsburgh. “It increases the likelihood the Fed will move again this year.” Federated isn’t making big bets on lower yields at this time, Dawson said.

The benchmark 30-year Treasury bond fell, pushing its yield up to 6.61% from Thursday’s 6.58%.

Friday’s slump brings to a close the worst month for the 30-year bond since February 1996. The yield on the benchmark issue climbed .31 percentage point this month, resulting in a decline of 3.3% for investors.

Because many stock market players took Friday off or left early for the Labor Day holiday weekend, volume was extremely light again, leaving the market more vulnerable to another day of volatile swings. On Thursday, the Dow swung from a 129-point loss to a 25-point gain, but faded over the final hour, losing about 93 points.

Although most analysts were hesitant to read much into the events of such a lightly traded day, most were pleased that smaller-company shares were continuing to attract attention.

“For a while, it was just the top 50 or 100 names in the Standard & Poor’s 500 that were trouncing everything else,” said Rick Jandrain, chief investment officer for equity securities at Banc One Investment Advisors in Columbus, Ohio. “Now, the rest of the market is catching up, and that’s healthy.”

The Commerce Department reported that consumer spending shot up 0.8% in July, the biggest jump in six months, and new home sales rose 0.9%, the third straight monthly advance.

Meanwhile, in one of the earliest readings on August’s business conditions, an association of Midwest factory executives reported vigorous activity in that pivotal region.

“The reports were all stronger than expected, raising the specter of tighter monetary policy at the Sept. 30 Fed meeting,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis.

On the New York Stock Exchange, declining issues outnumbered advancers by a 9-to-8 margin.

The Standard & Poor’s 500-stock list fell 4.20 points to 899.47, finishing below 900 for the first time since July 1.

The NYSE composite index fell 1.88 points to 470.48, and the American Stock Exchange composite index fell 0.53 point to 650.16.

The Nasdaq composite index rose 6.00 points to 1,587.32, and the Russell 2,000 rose 1.84 points to 423.43.

Among Friday’s highlights:

* Hong Kong’s Hang Seng index, the market’s key indicator of blue chips, fell 740.85 points to close at 14,135.25. On Thursday, the index had slumped 657 points.

After the market closed, the Hong Kong Assn. of Banks said it decided not to change interest rates.

Tokyo’s benchmark 225-issue Nikkei stock average fell 222.03 points, or 1.20%, closing the week at 18,229.42. On Thursday, the average had gained 9.51 points, or 0.05%.

The Nikkei average moved as low as 17,973.90 points early in the morning, in reaction to Wall Street’s overnight slump, before recouping some of the losses as traders moved to scoop up bargains.

In Thailand, the local currency fell to a record low and investors bailed out of the stock market.

Bangkok’s stock exchange index closed down 9.53 points to 502.23, clawing back some from a midday plunge to 491.24. The baht, meanwhile, ended domestic spot trading at 34.33 baht to the dollar, weaker from 34.07 on Thursday.

In Kuala Lumpur, the composite index fell only 7.78 points to 804.40 after the country’s prime minister on Thursday ordered government institutions holding pension and other funds to buy stocks to boost the declining market.

But the move apparently exacerbated the drop in Hong Kong, as sellers sought to limit their exposure to the region.

The Malaysian ringgit sank to a record low of 2.9400 ringgit to the dollar in early trading, continuing a slide that started when the currency was taken off its peg to gold.

In Singapore, the benchmark Straits Times industrials index fell 40.98 points to 1,805.64.

* Back home, the blue-chip sector’s losses were spread across various industry groups. The Dow’s biggest decliners were Alcoa, down $1.91 to $82.25; J.P. Morgan, down $1.88 to $107.50; Procter & Gamble, down $1.75 to $133.13; and Chevron, down $1.63 to $77.44.

Market Roundup, D4

DISCLOSURE URGED

The Fed chairman says countries should share economic data. D2