FINANCIAL MARKETS : Stocks Off On Fears of Interest Rate Hike

Stocks tumbled and bond yields rose for a second straight day Friday as upbeat economic data and bad corporate news fanned fears of rising interest rates.

At the close, the Dow Jones average was down 12.78 points at 3,869.43 after having been off as much as 35 points earlier.

The market’s decline was broad based with retreating issues leading advancers by nearly 2 to 1 on the New York Stock Exchange. Big Board volume was heavy at 378.19 million shares, up from 314.06 million Thursday.

In the bond market, the yield on the Treasury bellwether long-bond continued to rise as traders adjusted holdings ahead of note auctions next week.

The 30-year bond surged to 7.88% from Thursday’s 7.82%, while its price, which moves in the opposite direction, fell 3/4 point, or about $7.50 per $1,000 in face value.

Traders said the expiration of stock index futures contracts added to the market’s trading volume and volatility.

Aggressive profit-taking in technology stocks pushed broad indexes lower. The NYSE’s composite index fell 1.00 to 253.38. The Standard & Poor’s 500-stock index declined 2.17 to 464.78. The Nasdaq composite index slid 6.50 to 762.05. The American Stock Exchange’s market value index lost 1.89 to close at 437.64.

While another hike in lending rates could cool inflationary pressure, Wall Street is worried about the effect of higher interest on corporate borrowing and profits.

Auto stocks were hammered by fears of a slowdown in sales as last year’s six interest rate hikes by the Fed start to filter down through the economy.

The home building sector is another casualty of higher lending rates, illustrated in a government report that showed construction starts on new homes and apartments dropped in December.

Among Friday’s highlights:

At General Motors Corp., a strike, that was settled Friday evening, idled more than 30,000 workers at a key parts plant wreaking havoc with GM’s production system. And Ford Motor Co. said on Thursday it would idle its Windstar minivan assembly plant due to a lack of orders from dealers.

* Ford sank 1 1/8 to 26 3/8, Chrysler Corp. dropped 2 1/8 to 47 1/8 and GM lost 3/4 to 39 1/2.

* Morgan Stanley Group fell 3 7/8 to 59 after announcing that its fourth-quarter earnings would be substantially below those of the third quarter. Selling spilled over to other brokerage firms, with Salomon Inc. off 1 1/4 to 37 5/8 and Merrill Lynch & Co. down 7/8 to 36 3/8.

* Nabisco Holdings, a spinoff of 19% of RJR Nabisco’s food business, topped the NYSE actives, with a gain of 2 3/8 at 26 7/8.

* Apple Computer lost 3 1/4 to 42 5/8 despite quarterly earnings that beat analysts’ forecasts. IBM was off 1 1/8 to 75 3/8, and Intel tumbled 1 14/16 to 68 13/16.

* Telefonos de Mexico closed up 3/8 at 34 7/8 late in the day.

The issue pared its losses along with the Mexican stock market. The Bolsa index closed up 13.96 points, or 0.68%, to close at 2065.85, after being down more than 2% earlier in the session amid concern that the U.S. Congress might not come through with $40 billion in loan guarantees to help that country out of its currency crisis.

Other overseas markets closed sharply lower. In Tokyo, the 225-share Nikkei average closed down 235.52 points to 18,840.22, while Frankfurt’s 30-share DAX average dropped 33.78 points. London’s Financial Times 100-share average ended down 33.6 points at 2,995,0.