Tuesday, July 22, 1997

Dow snaps slump, but stocks mostly lower before Greenspan testimony

By BRUCE MEYERSON AP Business Writer

NEW YORK (AP) - The Dow Jones industrial average struggled higher Monday, but stocks were mostly lower in nervous trading before Tuesday's congressional testimony by Federal Reserve chairman Alan Greenspan.

The Dow slid more than 50 points in early trading, but pulled higher toward the close, rising 16.26 to 7,906.72. The blue-chip barometer had shed 150 points over the previous two sessions after hitting 8,000 for the first time on Wednesday.

Broader stock indicators slumped for the third consecutive session, with the Nasdaq composite index suffering the worst losses as investors locked in some more gains from the high-flying technology sector.

Few observers expected the market to see any decisive activity on Monday with Greenspan due to deliver a semiannual report on the economy to Congress on Tuesday.

Inflationary trends have remained fairly tame since Fed officials last met earlier this month, so there's been little worry that the central bank will try to slow the economy with higher interest rates at next month's strategy session. But mindful that stocks are trading near record levels, few investors can forget that Greenspan touched off a steep selloff in December after he raised fears that the Fed might boost rates to temper the inflationary impact of "irrational exuberance" in the markets.

"I don't think the worry about the Fed ever leaves us," said Joe Battipaglia, chief investment strategist at Gruntal & Co. "But the fact that the Fed has chosen not to (raise rate) in two previous meetings speaks more to what they have in mind than anything (Greenspan will) say."

In earnings news Monday, AT&T reported a 38 percent drop in second quarter profits, but the results were slightly better than expectations. Boeing, however, reported a 15 percent drop in profits for the period, falling shy of analysts forecasts. Union Carbide and Exxon, two other Dow components, reported strong results.

But the big earnings news came after the close of trading with a better-than-expected showing from IBM, which slipped -7/8 to 105 -5/8 in advance of the report. Boeing fell 1 11/16 to 54-3/8 as one of the Dow's weakest issues; AT&T slipped -1/8 at 34-1/4; Union Carbide rose 1 -3/4 to 52 and Exxon gained -7/8 to 61 5/16.

The Dow's biggest gainers were Caterpillar, up 2 -3/8 to 56 -3/4, and AlliedSignal, up 2-1/8 to 90-7/8.

Declining issues outnumbered advancers by more than a 2-to-1 margin on the New York Stock Exchange, where volume totaled 459.49 million shares as of 4 p.m., down considerably from the record-setting pace seen last week.

The Standard & Poor's 500-stock list fell 2.36 to 912.94, the NYSE composite index fell 1.47 to 474.50, and the American Stock Exchange composite index fell 3.19 to 630.40.

The Nasdaq composite index, which had set record highs for 10 straight sessions through Wednesday, fell 11.76 to 1,536.23. Microsoft fell for the second straight session, losing 4 9/16 to 135 15/16 to lead the Nasdaq retreat.

Battipaglia noted that although both Microsoft and Intel reported better-than-expected results last week, investors may be taking notice of the cautionary forecasts issued by both companies.

"Now that the euphoria has died down, we're looking at what was said," said Battipaglia. "We've booked the second quarter and everything's O.K., so now we're looking at the third quarter."

Overseas, Frankfurt's DAX index fell 2.1 percent and London's FT-SE 100 fell 1.5 percent. Japanese financial markets were closed for a holiday.