Retail Data Slam Bonds; Dow Off 101

Bond yields jumped in a late sell-off Tuesday, sending blue-chip stocks reeling again.

The Dow Jones industrial average slumped 101.27 points, or 1.3%, to 7,960.84, its first close below the 8,000 mark since July 21.

The broad market wasn’t as weak, but many analysts braced for today’s government reports on July retail sales and wholesale inflation.

The catalyst for Tuesday’s trouble was a report showing that national retail sales rose 0.9% in the first week of August compared with July.

The data, from LJR Redbook Research, raised worries that consumer spending is on the upswing--which could boost the economy’s pace, raising the threat of higher interest rates.

While long-term bond yields trended lower early Tuesday, they surged late in the session. The 30-year Treasury bond yield close at 6.67%, up from 6.63% on Monday and the highest since July 2.

“Nobody is expecting a weak [July] retail sales number” today, said Patrick Dimick, a bond strategist at UBS Securities. “The risks are heavily skewed” toward a strong number.

The Dow index, which traded in narrow range for much of the day, sank in the final two hours as yields jumped.

In the broad market, losers topped winners by 16 to 13 on the New York Stock Exchange. Most key indexes closed lower after rising early in the day.

The Nasdaq composite lost 10.50 points to 1,576.24 after trading as high as 1,601.

Traders said the markets’ concerns about inflation reviving with a stronger economy weren’t helped by the Labor Department’s report Tuesday that the nation’s productivity, or output per hour worked, grew at a seasonally adjusted annual rate of just 0.6% in the second quarter. That was a slower gain than in the first three months of the year.

With stocks still richly valued and investors back on their heels, analysts warned that stocks could be set up for a sharp pullback.

The Dow already is off 3.6% from its all-time high last week. Some blue-chip stocks are down far more: Coca-Cola, for example, has tumbled 16% from its record high.

Among Tuesday’s highlights:

* Drug stocks fell for the second day after brokerage Morgan Stanley Dean Witter recommended lightening up on the group, warning that the stocks had run up too fast.

Merck fell $1.63 to $93.63, Pfizer fell $1.69 to $53.19, American Home Products lost $1.81 to $76.06 and Eli Lilly declined $1.88 to $106.81.

Also, Amgen plunged $6.94 to $50.19 after warning of slower earnings growth. (Story, D2; Investor Spotlight, D8.)

* Stocks leading the Dow lower included Procter & Gamble, down $4.13 to $142.44; Boeing, down $2.38 to $56.69; and Union Carbide, down $1.31 to $53.63.

* Computer-related stocks were mixed. IBM rose 44 cents to $103.44 and Digital Equipment gained $1.31 to $46.13. But Apple Computer slumped $2.50 to $22.06 after it warned in a financial filing that doesn’t expect to be profitable in the fiscal fourth quarter and that net sales will be below year-earlier levels through at least March.

* Banking stocks were firm for most of the session but gave ground in the final hour as interest rates moved higher. Citicorp fell $1.94 to $134.31 and Bankers Trust dropped $1.31 to $98.56.

In currency trading, the dollar was relatively stable, despite the decline in blue-chip stocks and in bond prices.

Elsewhere, corn prices soared after the U.S. Department of Agriculture cut nearly half a billion bushels off its estimate of this year’s crop.

At the Chicago Board of Trade, corn futures for delivery in December closed 12 cents higher, their maximum daily increase, at $2.65 1/4.