NEW YORK -- U.S. stocks fell yesterday as higher interest rates took the wind out of last week's advance. The Dow Jones industrial average gave back early gains and fell 5.55 to 5,674.28. The average's biggest drop came in aerospace company Boeing Co., down $2.125 to $89.50.
The biggest losers were savings and loans, investment banks and brokerages, which had rallied last week as bond yields dropped.
Federal National Mortgage Association skidded $1.125 to $33.75, Citicorp slid $1.50 to $85.625 and Merrill Lynch & Co. lost $1.625 to $62.75.
The yield on the benchmark 30-year Treasury bond rose 3 basis points to 6.76 percent. Higher yields depress stocks by making fixed-income investments more attractive as an investment.
About 304 million shares traded on the New York Stock Exchange, the third-lightest full session of the year. The previous Monday's volume of 281 million shares set a 1996 nadir.
Declining stocks outnumbered advancing issues by about 12 to 11 on the Big Board.
The Standard & Poor's 500 index retreated 2.26 to 660.23.
The Nasdaq composite index declined 4.39 to 1,120.53, after having been as much as 3.91 higher. Trading on the computer-networked marketplace was the slowest of the year at fewer than 400 million shares.
The late-day retreat came as market analyst Elaine Garzarelli, best known for her prediction of the stock market crash in 1987, told investors on the cable channel CNBC to use stocks' recent rally as a "selling opportunity." Garzarelli was widely credited with tripping up markets June 23 by forecasting a decline of 15 percent to 25 percent in share prices.
Enthusiasm for corporate profits fueled last week's gains and the initial climb in stocks yesterday.
"The market's going to follow profits, and I don't see anything getting in the way of corporate America," said Barry Mills, director of investment at Howe & Rusling Inc., which oversees $450 million in Rochester, N.Y.
A spate of billion-dollar buyouts yesterday suggested that stock prices remain reasonable and that companies will continue to take steps to boost profit margins.
PacifiCare Health Systems Inc. said it would buy FHP International Corp. for $2.1 billion in cash and stock. FHP shares jumped $7.375 to $35.25; PacifiCare rose $3 to $71.75.
nTC GE Capital Corp., with $185 billion in assets, said it would spend $1.8 billion to buy life insurer First Colony Corp. General Electric, which owns GE Capital, fell 37.5 cents to $85.75. First Colony, with $11 billion in assets, rose $4.75 to $34.75.
MidAmerican Energy Co., a Midwest power utility, bid $1.2 billion for IES Industries Inc. in an effort to block a rival takeover offer from WPL Holdings Inc.
IES surged $3.50 to $33.25, while MidAmerican shares slid 75 cents to $15.875 and WPL declined 25 cents to $31.625.
Pharmacia & Upjohn Inc., a Swedish-American drugmaker, rose 50 cents to $43.375 after reporting a 12 percent gain in second-quarter profit from operations to $269 million from $240 million a year ago.
Gold shares rallied after Smith Barney raised its rating on Newmont Mining Corp. to "buy" from "outperform." The company, up $2.625 to $52.75 yesterday, reported earnings that topped analysts' average forecasts last week.
Ford fell 25 cents to $33.625 after it said sales in July dropped 0.1 percent. Chrysler Corp., up 50 cents to $29.875, and General Motors Corp., also up 50 cents to $51, earlier had reported mixed results for the month.
So far in the second quarter, corporate profits have surprised investors with their strength. About 56 percent of the 435 companies that reported earnings so far beat the average estimate of analysts polled by Zacks Investment Research. About 30 percent failed to meet expectations, while another 14 percent hit the average guess on the head.
Pub Date: 8/06/96