Dow Drops 6.4 as Investors Take Profits : Market Overview

Stocks fell Wednesday as investors took profits on shares that ran up in value during the previous session and worried about rising interest rates.

* After falling in early trading, Treasury bond yields turned higher after an expected Federal Reserve purchase of government securities failed to materialize.

Stocks

Analysts said investors took profits and waited for the House of Representatives to vote on the North American Free Trade Agreement, which would draw the United States, Canada and Mexico into a free trade zone.

On Tuesday, blue-chips soared after Wall Street became convinced that President Clinton had enough votes in the lower house to gain NAFTA’s approval. But there was little follow-through in Wednesday’s trading.

The Dow Jones industrial average ended down 6.42 points at 3,704.35, on Big Board volume of 319.57 million shares, down from 323.98 million the day before. Declining issues outnumbered advances by about 2 to 1 on the New York Stock Exchange.

“NAFTA has been browbeaten,” said Gregory Nie, market analyst at Kemper Securities. “People have had ample time to do whatever they were going to do to adjust for NAFTA.”

Still, Telefonos de Mexico, a Mexican stock that trades on the NYSE, rose 1/4 to 57 1/8.

A late rise in bond yields and corresponding decline in prices also helped push stocks lower. Stock investors like to see interest rates fall and worry when they rise because the lower the yield the more appealing stocks become.

With the exception of Mexico, stocks ended mostly higher abroad. Mexican stocks broke a six-session winning streak as investors grew cautious ahead of the vote on NAFTA. The 36-share IPC index closed 10.85 points lower at 2,148.50.

In Tokyo, stocks ended lower as arbitrage-linked selling continued to emerge. The Nikkei-335 average closed at 18,108.71, down 137.41 points. London’s Financial Times 100-share average surged 22.5 points to close at 3,120.0. The Frankfurt bourse was closed for a holiday and will reopen today.

Among the market highlights:

* Oil stocks were among the strongest performers, rallying with firmer crude prices. Chevron rose 3 to 93.

* Hewlett-Packard fell 3 3/4 to 73 3/4 after it reported disappointing earnings. The selling spilled over to other computer stocks, including AST Research, off 1 1/4 to 22 3/4, Compaq Computer, off 1 3/8 to 68 5/8, and Dell Computer, down 3/8 to 25.

* Newbridge Networks, a Canadian firm, lost 6 5/8 to 58 in heavy NASDAQ trading after its results did not exceed analysts’ expectations. Other computer networking stocks also sold off, including Cisco Systems, down 1 3/8 to 55 3/4, Wellfleet Communications, off 1 3/4 to 55 3/4, and Informix, down 1/2 to 17 1/2.

* Philip Morris fell 1 3/8 to 55 7/8 and RJR Nabisco ended unchanged at 6 1/2. Merrill Lynch downgraded its near-term rating on the stocks to below average from neutral.

Other Markets

Disappointment over the central bank’s lack of bond buying combined with a sharp rise in gold and oil prices to push the 30-year bond yield higher.

The yield on the Treasury’s long bond edged up to 6.17% from Tuesday’s close of 6.16%.Its price, which was up 1/2 point in early trading, closed down 7/32 point, or about $2.19 per $1,000 in face value.

The bond market prices rose sharply in early trading on wide optimism that the House would approve NAFTA.

However, Treasury bond prices began tumbling after the Federal Reserve failed to buy securities as expected later in the day.

Market Roundup, D8