Dow Slides 127 on Profit-Taking; Yields Surge

Stocks veered off the recovery road Thursday as the Dow Jones industrials sank 1.6%, slammed by profit-taking triggered by rising bond yields and jitters over what super investor Warren Buffett may or may not be up to.

The Dow tumbled 127.28 points to 7,893.95 in a decline that began in the morning and accelerated in the afternoon, although the index pulled up from a decline of 175 points just near the close.

The broad market was also lower, although selling was concentrated in blue chips, and trading volume slowed. The Russell 2,000 index of smaller stocks fell just 0.5%, one third the Dow’s loss.

After rising more than 100 points in each of the previous three sessions--a rebound that followed last Friday’s 247-point slide--Thursday’s Dow volatility didn’t seem all that unusual, but it still may be jarring to many investors, analysts concede.

“If the chart of this market were an EKG, I’d say the patient better go to the hospital,” said Stanley Nabi, vice chairman of Wood, Struthers & Winthrop Management in New York, which oversees $8 billion. “Investors don’t have any conviction. I don’t think we’re going into a bear market, but I believe we’re on the threshold of the largest correction of the year.”

“What is going on in the markets is this August choppiness,” said Sykes Wilford, portfolio manager at CDC Investment Management Corp. in New York. “We had some great days in equities, so people are going to sell.”

He believes the market’s next major trend--whether up or down--won’t be evident until September, when many investors return from summer vacation.

Stocks were undermined early Thursday by rising bond yields, as bond traders reacted to a regional economic report from the Federal Reserve Bank of Philadelphia. That report suggested the economy may be gaining speed.

The yield on the bellwether 30-year Treasury bond climbed throughout the day, ending at 6.62%, up from 6.54% Wednesday.

Also hurting market sentiment: The dollar began to slide again versus European currencies, including the German mark, after rallying in recent days.

A weaker dollar raises the risk that foreign investors will turn negative on holding U.S. stocks and bonds.

“It’s no accident that as the dollar rallied over the past three days, stocks jumped. But today the dollar fell back and so did stocks,” said Peter Canelo, strategist at Morgan Stanley Dean Witter.

The dollar ended at 1.836 marks in New York, down from 1.856 Wednesday. It also eased against the Japanese yen.

Finally, stocks were jolted late in the day on reports, apparently erroneous, that billionaire investor Warren Buffett had dumped all of his Wells Fargo and General Dynamics shares. (Story, D1.)

Because Buffett is considered the ultimate “buy and hold” investor, any sign that he might be dumping stocks could be viewed as an indication that he believes share prices are drastically overpriced.

Meanwhile, a report from the New York Stock Exchange showed that more bearish traders continued to throw in the towel: The NYSE said that “short interest” at Aug. 15 totaled 3.363 billion shares, down 29.4 million shares from a month earlier.

Short interest is the number of shares borrowed and sold in the open market and not yet repaid. Such sales typically are made when bearish traders expect stock prices to decline.

Among Thursday’s highlights:

* Losers topped winners by 2 to 1 on the NYSE and by 22 to 18 on Nasdaq.

* Major consumer products were lower, including Coca-Cola and Gillette, two stocks that led the recent pullback in blue chips on earnings-growth concerns. Because those stocks are also major Buffett holdings, some investors may fear that Buffett either has been selling or may in the future.

Coke lost 94 cents to $60.56; Gillette dropped $1.44 to $86.13.

Other consumer stocks falling included Procter & Gamble, down $3.13 to $137.88; Colgate-Palmolive, down $1.81 to $65.94; and Warner-Lambert, down $2.56 to $136.50.

* Technology stocks, recent leaders, also pulled back. Intel dropped $2.13 to $98.38, IBM lost $2.25 to $105.75, Dell sank $2.50 to $85.38 and Parametric Technology lost $3 to $49.75.

* Wells Fargo led a retreat in banking shares. It dropped $7.50 to $260 on the Buffett reports, then fell further in after-hours trading. Other bank stocks dropping included First Chicago NBD, off $1.75 to $74.13; Norwest, down $1.56 to $58.94; and BankAmerica, off $2.13 to $68.31.

* Bucking the down trend, Ciena, a maker of fiber-optic communication equipment, rose $2.19 to $52.25 after third-quarter earnings topped the average forecast. But Sunglass Hut tumbled $1.38 to $8.06 after saying earnings in the recent quarter, traditionally its most profitable period, fell short of the average forecast.

Also, Sunrise Medical gained $1.31 to $16.06. It reported a sharp recovery in quarterly earnings.

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Market Roundup, D8