Rising Yields Clip 27 Points Off Dow

An eroding bond market finally got the best of stocks Tuesday, sending blue chips lower one day after the Dow Jones industrials hit a record high.

The Dow slid 27.09 points to 5,192.27 and the broad market also closed mostly lower.

Still, some analysts were surprised that selling wasn’t more fierce, as Treasury bond yields continued to climb on worries about a potential government default ahead.

The bellwether 30-year Treasury bond yield jumped to 6.09% from 6.04% on Tuesday, reaching the highest level since Jan. 12. Shorter-term yields also inched up.

The government faces the prospect of default if Congress fails to raise the federal debt ceiling by March 1, Treasury Secretary Robert Rubin warned Monday.

President Clinton and Republicans are at an impasse over a balanced-budget plan, and that has led some Republicans to threaten to withhold approval of a higher debt ceiling, thus forcing a default.

“Rubin’s doing it because he knows it will spook the market a little bit,” said David Glen, who manages $7 billion of bonds at Scudder Stevens & Clark. Rubin “does things for effect,” and a crumbling bond market might help him pressure Republicans to raise the debt ceiling, Glen said.

Despite the default threat, the Treasury’s sale of new 2-year notes on Tuesday went well, indicating healthy demand. The government sold $18.25 billion of the notes at an average yield of 5.068%, down slightly from the 5.078% yield many traders had expected.

In the stock market, fourth-quarter corporate earnings dominated the day’s news, with some high-profile companies reporting disappointing results.

“Investors didn’t get one of those big positive earnings surprises” today as in recent days, said Dirk van Dijk, strategist at Dean Investment Associates. Last week, surprisingly strong earnings from IBM and Caterpillar had helped boost stocks.

Of the 188 companies in the Standard & Poor’s 500 index that have reported quarterly earnings so far, 47.3% have been above projections and 36.2% have lagged. At a comparable point in October, 55.2% of companies were ahead of expectations and 33.8% were behind.

On the New York Stock Exchange on Tuesday falling stocks edged winners by 12 to 11. Most major indexes closed modestly lower in active trading.

Among the day’s highlights:

* Weaker-than-expected earnings reports sent Texas Instruments down 2 1/8 to 46 1/2, Monsanto down 2 3/8 to 120 5/8 and Cummins Engine down 3/4 to 37 1/4.

Read-Rite plunged 4 1/2 to 20 1/2. The computer-component company posted better-than-expected results for the latest quarter but warned that profit margins in the next quarter will be lower.

* On the positive side, better-than-expected earnings boosted computer giant Digital Equipment, up 2 1/2 to 70, and restaurant chain Boston Chicken, up 1 5/8 to 32 1/4.

Other stocks moving after earnings reports included Merck, up 5/8 to 66 7/8; Continental Airlines, up 1 1/4 to 40 1/2; Gillette, down 1 3/4 to 51 7/8; and Weyerhaeuser, off 1 1/8 to 41 1/2.

* Apple Computer gained 1 1/8 to 31 5/8 and Sun Microsystems shed 4 7/16 to 44 1/8 on rumors about a merger between the two.

* Helene Curtis rocketed 8 1/4 to 53 1/8 on fresh speculation that the company will be sold. A shareholder group has suggested that the company auction itself.

* In an initial public offering, computer software maker Red Brick Systems jumped 12 1/4 to 30 1/4.

Overseas, the Tokyo 225-share Nikkei stock average fell 0.6%, Frankfurt’s DAX index eased 0.3% and London’s FTSE-100 fell 0.5%.

In commodity trading wheat prices shot higher amid rumors that a recent price decline had lured major international buyers into the market.

On the Chicago Board of Trade, wheat futures for March delivery settled up 10 cents a bushel, or half the daily trading limit, at $4.92 1/4, after trading between $4.79 1/2 and $4.93 during the day.