Late sell orders offset rally Dow off 22

NEW YORK — NEW YORK -- Stocks closed mixed yesterday as a late bout of computer-driven sell orders offset a rally paced by drug and health care issues.

After spending most of the session above yesterday's closing level, the Dow Jones industrial average fell 22.16, to 3,435.11. The decline occurred in the last hour of trading, as some newly created options on stock indexes expired.


J. P. Morgan Co., Du Pont Co., Aluminum Co. of America, Caterpillar Inc. and General Electric Co. paced the late retreat.

Broader indexes fared better than the Dow industrials because health care stocks make up a greater percentage of the indexes, analysts said. "The thunder was stolen by the drug stocks," said Jack Solomon, technical analyst at Bear Stearns & Co.


Standard & Poor's 500-stock index fell just 0.30, to 451.67, while the Nasdaq Composite index rose 3.88, at 690.13, the New York Stock Exchange Composite climbed 0.24, to 249.42, and the American Stock Exchange Market Value index gained 3.75, to 423.43.

Drug stocks continued their rally from yesterday after Health and Human Services Secretary Donna E. Shalala and adviser Ira Magaziner said price controls may not be part of the administration's plan to revise the health care system.

"The drug industry has been decimated because of fears of price controls," said Bill Langevin, manager of institutional trading at Morgan, Keegan & Co. As a result, the officials' comments were "a big, big statement," he said.

Shares of Johnson & Johnson climbed 50 cents, to $42.50, American Home Products Corp. gained 50 cents, to $66.125, and Warner-Lambert Co. rose 50 cents, to $70.125.

Also, shares of health maintenance organizations rose after an analyst at Lehman Bros. Miriam Willard, raised her ratings to "buy" from "outperform" on some companies. Foundation Health Corp. rose $1.75, to 30, United Healthcare Corp. gained $1, to $51.50, and U.S. Healthcare Inc. added $1.50, to $46.25.

Trading was moderate on the New York Stock Exchange, as almost 280 million shares changed hands.

Advancing issues led decliners by almost 3-to-1 on the Big Board and 4-to-3 on the Nasdaq.

Yesterday was the first closeout of quarterly index expirations, options traded on the Chicago Board Options Exchange and the Amex. Index options are contracts representing the right to buy or sell all the stocks in an index.


Trading in the blue-chip stocks that compose an index can be volatile whenever contracts expire as investors complete trades involving both markets.

Since Feb. 1, the Nasdaq Composite has fallen 1.5 percent while the Dow industrials have gained about 4 percent. The Nasdaq stands 2.5 percent below its all-time high of 708.85. Yesterday's rise in the index as the Dow industrials fell is "a temporary phenomenon," said John A. Conlon, managing director at Rothschild Inc.

Some analysts believe the stock market may be in for a sustained decline. "The market is going to have another aborted rally," said Michael Metz, chief market strategist at Oppenheimer & Co. "There is the beginning of a revived inflation scare," he said, adding that he doesn't believe interest rates will decline.

Mr. Metz said he believes Friday's employment report will hurt stocks and be neutral for bonds. The Labor Department is expected to report that the economy added 99,000 non-farm jobs in March, according to a Bloomberg survey. The unemployment rate is expected to remain unchanged, at 7.0 percent.

"If it's good, it validates expectations. That's all implicit in the [stock] market," he said. "If it's bad, we're in for a sustained correction."

To be sure, investors continue to pour money into stock mutual funds, said Ronald B. Doran, director of institutional trading at C.L. King & Associates. "We are at lofty levels," Mr. Doran said. "But cash coming from mutual funds is still strong."


Healthcare Compare Corp., Wal-Mart Stores Inc., Microsoft Inc., Merck & Co. and Repsol SA were the most actively traded issues on the U.S. composites.