Stocks Lower in End-of-Year Quiet Trading

Market Overview

- Stocks ended broadly lower in subdued trading Tuesday as market players adjusted their portfolios for the year’s end and avoided making new commitments.

- Treasury bond yields retreated from early advances to end slightly higher on better-than-expected demand for two-year Treasury notes.

Stocks

Rising bond-market interest rates set a negative tone for stocks, analysts said.

The Dow Jones average ended down 10.06 points at 3,745.15, on Big Board volume on 273.37 million shares, up from 255.90 million on Monday. Declining issues outnumbered advances by about 11 to 8 on the New York Stock Exchange.

“Stocks are being driven by the bond market, tax selling and the Christmas blahs,” said Bill Allyn, a managing director at Jefferies & Co, during the session.

Investors like to see rates fall because that makes shares more appealing and cuts the cost of money to companies.

And Tuesday’s meeting of the Federal Reserve’s Open Market Committee only heightened investor concern that interest rates may be on their way up. Many analysts believe the Fed is leaning toward tightening credit.

“There is a fair degree of pessimism about what the new year may hold,” said James Solloway, director of research at Argus Research Corp.

Consequently, there was little interest in significant new commitments ahead of the holiday weekend and the year’s end, analysts said. Money managers hope to hang on to their gains for the year and avoid any late accidents.

Analysts also pointed to continued tax selling among investors as a reason for Tuesday’s lower stock prices. That typically occurs in December as investors dump losing stocks to offset gains on winners.

Stocks ended mostly lower abroad. In Tokyo, the 225-issue Nikkei Stock Average lost 88.81 points to finish at 17,315.34. London’s Financial Times 100-share average closed down 22.5 points at 3,342.4. In Frankfurt, the 30-share DAX average ended 2,182.93, up 4.77.

In Hong Kong, the Hang Seng lost 290.50 points to 10,524.28. Mexico’s Bolsa fell 11.29 points to 2,479.73.

Among the market highlights:

- Borden led the most-active list, rising 1/2 to 19 1/8. There were reports Monday the company’s directors are considering putting the beleaguered food and chemicals concern up for sale. The Wall Street Journal reported Tuesday Hanson PLC was considering a bid.

- In other NYSE trading, Paramount Communications fell 1 3/4 to 80 1/4. On Monday, QVC Network raised its bid for Paramount, topping rival Viacom. QVC lost 1 1/2 to 42 in Nasdaq trading.

- J.C. Penney lost 1 1/2 to 51 1/2 and Sears Roebuck dropped 1 1/4 to 53 5/8. Minnesota Mining & Manufacturing fell 2 to 110 and Boeing Co. lost 3/4 to close at 43 7/8. McDonnell Douglas fell 3 1/8 to 106 3/8.

- Nike Class B fell 1 1/4 to 43 3/8. the company reported Monday that its fiscal second-quarter earnings were 69 cents a share versus 98 cents in the same period last year.

- Alcoa, which said it will incur a charge of $70.2 million to fourth-quarter earnings for severance costs associated with employee reductions lost 1 1/4 to close at 68 3/8.

- Ford Motor gained 2 to 64 3/4 after Merrill Lynch increased 1993 and 1994 earnings estimates for the company.

-CBS, which lost professional football broadcasting rights, closed down 5 1/8 at 291 3/4.

- The Nasdaq index fell 4.52 to 755.63, led by Banyan Systems, which shed 11 1/8 to 14 1/2. The company said fourth-quarter earnings would be below analysts forecasts. Several brokerages lowered ratings on the stock.

- On the American Stock Exchange, Greyhound Lines fell 1 3/8 to 11 1/2. Late Monday the company said 1993 earnings would likely be below last year’s.

Other Markets

The key 30-year bond yield, rose to 6.31% from Monday’s 6.30%. Its prices, which moves in the opposite direction, ended down 3/32 point, or about 94 cents per $1,000 in face amount.

Bond prices plunged to four-week lows in early trading amid uncertainty over demand for the Treasury’s auction of $17 billion in 2-year notes. Demand for new government securities traditionally is weak this time of year, as many customers are absent in advance of the Christmas holiday.

The high yield was 4.28%, up from 4.27% at the last auction on Nov. 22. It was the highest rate since two-year notes sold for 4.71% on Dec. 22, 1992. But the results released early afternoon showed investor demand slightly higher than expected.

The bid-to-cover ratio, a measure of Treasury auction demand that compares the number of bids offered to those accepted, was 2.78-to-1, up from an average of 2.70-to-1 in the 13 previous auctions.

The Treasury conducts its next auction today, when it sells $11 billion in five-year notes.

Also supporting bond prices was the Johnson Redbook’s weekly report on department and chain store sales, which showed sales in the third week of December down a seasonally adjusted 1.7% from November’s level.

That alleviated some anxiety that the accelerating economic recovery will create a resurgence of inflation, which can diminish the value of bonds and other fixed-income securities.

In other markets:

- The dollar settled lower against most key currencies but continued to rise against the Japanese yen in subdued trading.

- Gold for current delivery settled at $387.90 an ounce, down $1.40 on New York’s Comex. Silver settled down 4.5 cents at $5.063 an ounce.

- Light sweet crude oil fell 2 cents to $14.36 a barrel on the New York Merc.

Market Roundup, D6