NEW YORK -- U.S. stocks closed mixed yesterday as weakness in IBM and Merck & Co. pushed the Dow Jones industrial average lower and a rally in Medco Containment Services Inc. lifted the Nasdaq Combined Composite index.
"Superfluous things are hanging over the market, like what Congress plans to do with President Clinton's deficit-reduction bill and whether the Bundesbank plans to cut interest rates. But in reality, the market was driven by earnings reports and news of the Merck-Medco merger," said Jon Groveman, president of Ladenburg Thalmann & Co.
The Dow industrials fell for a second straight day, sliding 12.01, nTC to 3,553.45. The average closed just above its session low of 3,545.34, and 14.25 below its record 3,567.70, which was set Monday.
Meantime, the Nasdaq composite added 4.59, to 705.59, closing at its highest level since July 14. Medco shares accounted for much of the advance.
Medco rallied $4.375, to $34.125, after Merck reached a definitive agreement to buy the nation's largest mail-order drug retailer for $6 billion in cash and stock.
Merck sees the acquisition as a way to regain some of the profit it has been losing to drug distributors like Medco, analysts said. But the move could trigger more price-cutting among drug manufacturers, which could tighten the squeeze on Merck's profit, they said. Merck shares fell $1.375, to $30.75.
International Business Machines Corp. slumped $1.625, to $44, after rallying $3.25 Tuesday. The decline in IBM was tied in part to comments from PaineWebber Inc.'s Stephen Smith. The analyst said IBM shares probably would fall below $40 based on the company's book value of $35 a share and following the company's dividend cut.
Stocks were influenced somewhat by the budget debate in Washington, traders said. Sen. David Boren, D.-Okla., said in a speech on the Senate floor Tuesday that he might vote against Mr. Clinton's deficit-reduction package.
Mr. Clinton said yesterday that he expects Congress to pass the deficit-reduction plan. "No one so far has been able to give a credible alternative" that would still produce $500 billion in deficit reduction over five years, Mr. Clinton said.
Investors also were waiting to see whether the Bundesbank cuts interest rates, said Peter DaPuzzo, senior managing director at Cantor, Fitzgerald & Co. Economists expect Germany's central bank to trim leading interest rates at its policy-making central council meeting today in a bid to defuse tension within the European exchange rate mechanism.
Lower interest rates in Germany would be a positive for the U.S. market because it would probably lead to rate cuts by other European nations, traders said. As interest rates fall in Europe, demand for U.S. exports typically increases.
Still, stocks were affected more yesterday by earnings reports and other corporate developments than by what is happening in Washington and Germany, Mr. DaPuzzo said.
The Standard & Poor's 500 Stock Index closed 1.04 lower at 447.20.