Blue Chips Ease After 3-Day Rally

Blue-chip shares slipped Thursday after a three-day rally, but bargain hunters kept scouring the technology sector and other areas that haven’t recovered as fully from the market’s recent slide.

Meanwhile, long-term bond yields fell to their lowest level in seven weeks amid optimism that congressional leaders and President Clinton will strike an agreement to balance the federal budget.

On Wall Street, the Dow Jones industrial average eased 32.51 points to 6,976.48 as investors secured some of this week’s gains before today’s April employment report, the last of the week’s big economic readings.

Broader market measures were mixed, with technology and small-company shares boosting the Nasdaq market to its fourth straight gain. The Nasdaq composite index rose 9.74 points to 1,270.50, while the Russell 2,000 index of smaller stocks rose a strong 2.66 points to 345.66.

Winners outnumbered losers by 14 to 10 on the New York Stock Exchange and by 22 to 17 on Nasdaq.

The Dow, which slid by as much as 95 points by midday before rebounding, had gained 270 points during the previous three sessions, moving above 7,000 on Wednesday for the first time since March 12.

“What we saw [Thursday] was simply some profit taking in the blue chips, which had run up nearly 10% from April’s lows,” said Eugene Peroni, director of technical research at Janney Montgomery Scott in Philadelphia.

“The money continues to move about, but it’s staying in the market, not moving out of the market,” he said. “Investors are becoming more confident, and unless we get disastrous results [in today’s economic data], Thursday’s decline will be a short one.”

A flurry of new economic data was released Thursday, but none of it seemed quite so pivotal sandwiched between key reports such as today’s employment data and Tuesday’s and Wednesday’s readings on employment costs and the overall pace of the economy.

The latter reports showed that although business activity was vigorous in the first quarter, there was only a modest increase in wages and compensation, which account for two-thirds of a product’s price. That sent bond yields plummeting and stocks rocketing.

If today’s April employment report continues that theme, more investors may come to the conclusion that the Federal Reserve Board either won’t have to tighten credit further, or will make only one more small adjustment with a quarter-point rise in its benchmark short-term interest rate on May 20.

Bonds seemed to be taking a moderate April employment report for granted Thursday. The bellwether 30-year Treasury bond yield dropped to 6.92% from Wednesday’s close of 6.95%, and now is at its lowest since March 24. Shorter-term yields also fell.

As a measure of the bond market’s rally in recent days, the two-year T-note yield ended at 6.26% on Thursday. It was 6.54% last Friday.

Traders said the bond market also appears increasingly optimistic that the White House and Congress will agree on a balanced-budget deal, which could eventually bolster bonds by limiting the supply of new debt in the Treasury market.

Among Thursday’s highlights:

* Technology issues were boosted by strong showings in the battered computer-networking sector, including Cisco Systems, up 1 5/8 to 53 3/8; 3Com, up 2 to 31; and Xylan, up 1 5/8 to 16 1/2.

Other tech winners included Micron Technology, up 2 7/8 to 38 1/8; Compaq Computer, up 2 7/8 to 88 1/4; Adobe Systems, up 2 5/8 to 41 3/4; Western Digital, up 2 5/8 to 64 1/4; and American Power Conversion, up 2 3/8 to 21 3/8.

But PairGain Technologies slumped 3 5/8 to 22 3/8 after telling investors that its profit margins are under pressure.

* Financial services stocks were mixed. Franklin Resources gained 3/4 to 59 7/8 and Merrill Lynch rose 1 1/8 to 96 1/8, but Wells Fargo lost 4 5/8 to 262 1/8 and Citicorp eased 1/8 to 112 1/2.

* The Dow’s losers included DuPont, down 2 7/8 to 103 1/4; Johnson & Johnson, down 1 1/2 to 59 5/8; and Coca-Cola, down 1 1/2 to 62 1/8.

* Airline issues also were hit by profit taking. A Merrill Lynch analyst cut the firm’s investment opinion on United Airlines parent UAL Corp., which fell 2 1/2 to 71 7/8. Also falling: Southwest Airlines, down 1 1/8 to 26 3/8, and US Airways, down 1 to 31 3/8.

* Reebok, stung by falling market share in recent years, inched up 1/8 to 38 1/2 after a majority of shareholders, led by the California Public Employees’ Retirement System, voted against management and for a proposal to cut directors’ terms to make them more accountable.

In currency trading, the dollar hit an intraday high of 127.47 Japanese yen, the strongest since August 1992, before retreating to settle in New York at 126.51 yen, down from 127.06 on Wednesday.

Traders said speculation that the Bank of Japan was selling dollars contributed to its sudden slump. That talk, which proved to be unsubstantiated, followed remarks from top Japanese finance officials who warned they’ll act to prevent the yen from falling further.

In commodities markets, coffee prices soared to the highest levels in almost three years in frenzied trading amid fears about shrinking warehouse stocks.

At the Coffee, Sugar and Cocoa Exchange in New York, coffee for May delivery ended at $2.53 a pound, up 13.7 cents on the day and up 36 cents, or 17%, since April 25.