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Blue-chip stocks drop on interest rate fears

NEW YORK: Blue-chip stocks dropped as much as 140 points Monday as suprisingly strong employment numbers sparked fears of higher interest rates, but the market trimmed its losses in late trading.

"We had a freefall in the first hour of trading but then the initial shock of the jobs report faded. There was no panic selling," said Ken Ducey, director of trading at BT Brokerage.

The Dow Jones industrial average lost 88.51 points, or 1.56 percent, to close at 5,594.37, well above its session low of 5,542.34. In the broader market, losers trounced gainers 2,352 to 323 on heavy volume of 411.8 million shares.

The market's steep early drop triggered the so-called cicuit breakers that restrict trading in stock market index contracts.

It was the Dow's 16th-largest point loss ever, but on a percentage basis, the loss did not even make the top 100.

Stocks fell in reaction to job figures released Friday, when U.S. stock markets were closed for the holiday weekend.

The Labour Department reported Friday that non-farm payrolls jumped 140,000, more than double Wall Street's expectations for a 60,000 rise.

The data came on the heels of last month's Labour Department report for February, which had stunned the markets with a jump of 705,000. While that figure was revised downward to 624,000 Friday, it still showed the economy was stronger than analysts had expected for the first quarter.

Fears of stronger economic growth and a possible pickup of inflation fuelled a sell-off in the bond market, sending market interest rates sharply higher.

The key 30-year Treasury bond, which lost 1-27/32 Friday, dropped half a point on Monday, raising its yield to 6.87 percent from 6.83 percent at Friday's close.

Analysts said the jobs report made it unlikely the Federal Reserve would lower interest rates again anytime soon.

"What is probably a very safe, or solid conclusion, is that there is no rate cut in the immediate future," said Eric Miller, chief investment officer at Donaldson, Lufkin & Jenrette Securities Corp.

The latest economic data changed the tenor of Wall Street, analysts said, and may trigger the first significant pullback in 18 months as investors face first-quarter corporate earnings growth that has slowed considerably.

"Stocks have an interest rate hurdle to mount and now we may be confronted with a whole lot of earnings disappointments," said Douglas Cliggott, a senior investment strategist at Merrill Lynch. "From where we sit it's difficult to see much significant upside in equities in the near term."

Traders said some technology stocks found buyers in late trading after Lehman Brothers noted computer memory chip prices were climbing on the spot market.

The technology-laden Nasdaq Composite index shed 12.55 points to 1,105.66 after falling as low as 1,093.33.

Technology stocks that firmed in late trading included International Business Machines Corp., up 1-7/8 to 199-3/8, Micron Technology Inc., up 2-5/8 to 33-5/8, Texas Instruments Inc., up 1-3/4 to 52-5/8 and Intel, up 1-3/8 to 60-5/8.

Piper Jaffrey upgraded Intel, citing firming demand for personal computers.

Among other issues, Fannie Mae fell 1 to 32-7/8 after Lehman dropped the stock from its recommended list.

Informix tumbled 7-1/8 to 18-3/8 after issuing a warning that first-quarter earnings would fall below expectations.

Vista 2000 slumped 2-13/16 to 3-15/16. The company said its CEO will take a leave of absence pending an examination of the company's results by its audit committee.

Abbott Labs rose 1-1/8 to 43-1/8 after a strong earnings report for the first quarter. Warner Lambert added 3-1/2 to 113-7/8, defying weakness in the drug sector. Morgan Stanley upgraded the stock, market sources said.

The Standard & Poor's composite index of 500 stocks fell 11.62 to 644.24. The American Stock Exchange index fell 6.62 to 570.48.

The NYSE composite index lost 6.27 to 345.65. The average price per share rose fell 72 cents.

The Wilshire Associates Equity Index -- the market value of NYSE, American and Nasdaq issues -- was 6,352.96, down 108.647 or 1.68 percent.-Reuter