NEW YORK -- U.S. stocks fell yesterday for a second day, led by economically sensitive issues, amid concern that the Federal Reserve will raise interest rates next week, braking the economy and slowing corporate profit growth.
"You get interest rates high enough, it's going to stall out this economy," said Brett Discher, vice president of equity trading at Dain Bosworth Inc.
"Mortgage rates are going to [rise], you'll get a slowdown in housing, people will spend less -- the old domino effect."
The Dow Jones industrial average fell to its lowest point in more than a month, dropping 20.52, to 3,801.47. For the week, the benchmark average slipped 1.5 percent.
Shares of Sears, Roebuck & Co. and Walt Disney Co. led the index lower, followed by Boeing Co., Caterpillar Inc., United Technologies Corp. and AlliedSignal Inc. -- companies sensitive to swings in the economy.
The Morgan Stanley Cyclical Index of 30 stocks fell 2.74, to 291.18, its lowest since 290.98 on Oct. 6.
Among broader market indexes, the Standard & Poor's 500 Index, which is down 0.9 percent in 1994, fell 2.0, to 462.35. It was the third straight drop and the lowest close in a week. Slumps in retail, banking, computer software and chemical issues offset gains in beverage, telecommunications equipment and food stocks.
Shares of beverage and food companies are rising in part because their earnings are less sensitive to economic trends, said Richard Garriques, an analyst at Bond Procope Capital Management, which manages about $350 million.
While demand for big-ticket items like cars may lag in an economic slowdown, consumers don't stop buying soda, hamburgers and staple consumer products, he said.
PepsiCo was the biggest gainer in the S&P; 500, climbing $1.625, to $36.875. Analysts at PaineWebber Inc. and Salomon Brothers upgraded the stock after the company announced a reorganization that put Vice Chairman Roger Enrico in charge of its struggling restaurants unit.
Declining stocks outpaced advancers by about 5-2 on the New York Stock Exchange, where about 219 million shares traded hands. Volume on the NYSE was moderate, as some investors took the day off in observance of Veterans Day.
The Nasdaq composite index fell 2.26, to 762.12, its lowest since 761.21 on Oct. 24.
The index was supported by shares of Chiron Corp., which soared as much as $19.50, to $79.25, amid speculation that Switzerland's Ciba-Geigy AG was mulling a takeover of the biotechnology company. The stock retreated to $71.50, up $11.75, after Chiron said it was in talks to sell a "substantial" minority stake to an unidentified company.
The NASD biotech index of 82 stocks rose 4.55, or 2.9 percent, to 162.22, after being up as high as 166.86. After Chiron, the day's biggest gainers among biotech stocks were Amgen Inc., up $1.50, to $58; Genzyme Corp., which added 75 cents, to $30.50; and Genentech Inc., which climbed $1, to $47.50.
The Nasdaq composite index's biggest laggard was Microsoft Corp., which fell $1.4375, to $62.25.
Richard Sherlund, an analyst at Goldman, Sachs & Co., lowered his estimate for the software company's fiscal 1995 earnings estimate to $2.20 a share from $2.30. He cited a possible delay in the company's new Windows 1995 software, an official at Goldman Sachs said.
Weighing on stocks was the prospect the Federal Reserve will raise rates after its policy-making arm meets Tuesday. The Fed has already raised the rate banks charge each other for overnight loans five times this year, to 4.75 percent from 3 percent.
Higher rates hurt stocks by encouraging people to put their money in less risky fixed-rate investments like bonds. They also raise the cost of borrowing, which hurts future corporate profits.
"Investors are worried, because they're looking at a year that's done nothing," said Leon Brand, global market strategist at NatWest Securities Inc.
With the yield on the benchmark 30-year bond at 8.15 percent, Mr. Brand said, investors are asking themselves, "Why are we sitting in the stock market?"
Yesterday's most active stocks were Cisco Systems Inc., Chiron, Microsoft, Telefonos de Mexico SA and United Leisure Corp.
Telefonos de Mexico's American depositary receipts, each representing 20 series L shares, climbed $2.25, to $53.50.
The Mexican telephone company rebounded after ATT Corp. and Alfa SA said Wednesday they will invest $1 billion in a venture to offer telephone service within Mexico, competing with Telmex's 10-year monopoly.
Cisco Systems Inc. added $2.375, to $33. The provider of systems that link groups of computers together said earnings in the first quarter ended Oct. 31 rose to 37 cents a share from 24 cents a year ago. Analysts expected the company to earn 36 cents, according to Institutional Brokers Estimate Service.