Dow Sinks 258 on Renewed Rate Worries

Investors who expected a lot more volatility this year aren’t being disappointed.

Blue-chip stocks on Wednesday suffered their biggest drop in two weeks, as the Dow Jones industrials slid 258.44 points, or 2.4%, to 10,699.16 amid fresh interest-rate worries.

The broad market also slumped, but no other major index suffered a loss on the Dow’s scale. The New York Stock Exchange composite fell 1.9%. The Nasdaq composite, fresh off Tuesday’s record high, lost 64.26 points, or 1.5%, to 4,363.24.

The Dow’s loss was the biggest since it dropped 289.15 points, or 2.6%, on Jan. 28. The index now is at its lowest point since Nov. 11, and is down 8.7% from its record high of 11,723 set on Jan. 14.

Stocks were weak all day, then headed sharply lower in the last hour after Treasury Secretary Lawrence Summers riled the bond market by suggesting the government’s debt-buyback plan could involve securities of all maturities.

That triggered selling in 30-year bonds, which is where bond traders had expected the government to focus its debt repurchases. The 30-year T-bond yield ended at 6.30%, up from 6.23% on Tuesday.

But the bond market was having a tough day anyway, after the Treasury’s auction of new 10-year notes produced the weakest bidding in more than two decades--and an average yield of 6.54%.

Although many traders believe the government’s buyback program will eventually lead to a shortage of long-term Treasury bonds, in the near term there’s greater fear that the Federal Reserve’s campaign to raise short-term interest rates will push all interest rates higher.

Those worries continue to drive many investors out of blue-chip “old economy” companies whose earnings could suffer in a Fed-induced weaker economy.

Stocks helping pull the Dow down on Wednesday included such industrial giants as Caterpillar, down $1.88 to $39.13; International Paper, down $1.88 to $43.13; and General Electric, down $3 to $134.06.

But many of the Dow’s “new economy” stocks also were slammed by profit taking. Intel dropped $4.19 to $104.63 from Tuesday’s record close, and Microsoft lost $5.94 to $104.

Many investors are taking profits as they wait to find out “just how far the Fed will go,” said Eugene G. Mintz, analyst at Brown Bros. Harriman in New York. “They’ve already committed a lot of money to this market and they’re a little nervous.”

But Nasdaq was supported by strength in other key tech stocks, including Cisco Systems, up $3 to $128.81; Sun Microsystems, up $4.56 to $91.56; and Adobe Systems, up $3.81 to $87.56.

One positive sign in the broad market Wednesday was that trading volume was down from recent levels--suggesting there was no panic selling. Still, losers topped winners by 2 to 1 on the NYSE and 23 to 18 on Nasdaq.

Among the day’s highlights:

* Oil stocks were sharply lower after a Venezuelan Energy and Mines Ministry spokesman said oil ministers from Saudi Arabia, Venezuela and Mexico would meet early next month to endorse an increase in global oil output for as early as April.

Although crude oil prices and gasoline futures prices rose on Wednesday, Exxon Mobil fell $2.19 to $76.25 and Texaco slid $2.31 to $49.56.

* Drug stocks were hurt after a Wall Street Journal story focused on Merck’s challenges as five of the company’s drugs lose U.S. patent protection in the next two years. Merck fell $4.06 to $71.38, Lilly lost $1.56 to $61.75 and Johnson & Johnson dropped $2.06 to $80.

* Allstate dragged insurance stocks lower with a weak earnings report. The stock sank $2.06 to $19.94. And Nike tumbled $3.25 to $33.75, falling for a second day after its earnings warning.

The news was better in Asia, where a fresh rally in Japanese stocks lifted the Nikkei-225 index 0.7% to 20,007, the first close above 20,000 since mid-1997.

Stocks also rose sharply in Hong Kong and South Korea. But Wall Street’s slump dragged down recently red hot Latin American markets. The Mexican market slid 1.5%.

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Market Roundup, C8