Stocks Mixed as Dollar and Yields Decline

In a hectic session Wednesday, the U.S. stock market closed mixed but mostly lower as the dollar tumbled and the usual good news of falling interest rates failed to cheer investors for long.

The Dow Jones industrials sank 63.35 points, or 0.8%, to 7,906.71 after rallying as high as 8,035.

In the broad market, winners had a tiny edge over losers on Nasdaq, while the reverse was true on the New York Stock Exchange. NYSE volume surged to 646 million shares, the highest since July 16.

Even the Russell 2,000 index of smaller stocks, which has been consistently hitting record highs in recent sessions, stalled out: It lost 0.84 point to 448.58.

Analysts said worries about third-quarter earnings continued to weigh on stocks.

“Everybody’s anxious,” said Gary Campbell, chief investment officer at Kansas City, Mo.-based Commerce Bank, noting that several big-name companies have in recent weeks warned about weaker-than-expected results.

Early in the day, however, a sharp decline in bond yields did boost stocks. Bond yields fell as the Treasury met with strong demand for the $11.5 billion of five-year notes it auctioned at an average yield of 5.96%.

The yield on the bellwether 30-year T-bond dropped to 6.31% from 6.38%, and now is the lowest since hitting 6.30% on July 31.

“People have gotten used to the idea that you can have a pretty good economy and a pretty good bond market too,” said Tom Donne, who manages about $1 billion at Banc One Investment Advisors Group in Columbus, Ohio.

But the bond market’s rally was forgotten as stock trading wore on, and the dollar tumbled against the German mark and Japanese yen after the Bundesbank president pledged to keep the mark strong and a Japanese finance official suggested the Group of Seven industrial nations don’t want the yen to weaken further.

Germany will do “everything” to ensure that the mark remains “a strong currency and not depreciate against the big world currencies,” said Hans Tietmeyer, in an interview to be published today in a German newspaper.

Meanwhile, Eisuke Sakakibara, Japan’s vice finance minister for international affairs, said officials at a G-7 meeting last weekend sent “a strong message on the yen and dollar.”

In New York, the dollar slumped to 1.772 marks from 1.793 on Tuesday, and to 120.40 yen from 122.13.

A weaker dollar could encourage foreign investors to trim their U.S. stock and bond holdings or put off new purchases. On the other hand, a weaker dollar would be good news for many U.S. multinational companies.

In any case, analysts said the stock market is more likely to take its cue in coming weeks from third-quarter earnings reports than from the dollar’s trend.

Meanwhile, some money managers said the decline in bond yields and strong flows of money into mutual funds will help stocks rebound soon. In the two days ended Monday, U.S. stock funds took in $2.3 billion, with $1 billion of that going to growth-stock funds, the newsletter Mutual Fund Trim Tabs said.

Among Wednesday’s highlights:

* Some financial stocks were strong as Travelers Group announced plans to buy Salomon Inc. in a stock swap worth about $78.50 a share. Salomon soared $4.75 to $76.25, while Travelers fell $2.63 to $69.44.

Among other investment firms, Merrill Lynch rose $1 to $71.56, Charles Schwab gained $1.69 to $35.88 and PaineWebber rose $1.50 to $44.13.

* Broad-based weakness in tech shares hurt the market. Intel slumped $3.50 to $95.63 on news of a new federal probe into its business practices. Microsoft was off $3.06 to $132.44, Micron Technology slid $2.38 to $34.69 and Computer Sciences lost $2.44 to $72.13.

* Gucci Group added to earnings worries. It plunged $10.88 to $47.38 after saying that economic troubles in its largest Asian markets may dent sales of its leather bags, scarves and clothing.

* On its first day of trading, new issue Avis Rent A Car rocketed $5.50 to $22.50 on the NYSE.

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Market Roundup, D8