Dow Tumbles To Second-Biggest Point Loss

US blue-chip stocks chalked up their second-biggest point loss and bond prices fell Monday after Japans Prime Minister discussed potential Japanese sales of US government bonds.

The dollar ended mixed. Oil rose. The Dow Jones industrial average fell 192.25 points to 7,604.26, a point decline second only to the 508-point drop when the market crashed on Oct. 19, 1987.

The late afternoon sell-off was ignited by Japanese Prime Minister Ryutaro Hashimotos comments that stable exchange rates were critical to Japans continued buying of US government securities. I hope the US will engage in efforts and in cooperation to maintain exchange stability so we will not succumb to the temptation to sell off Treasury bills and switch our funds to gold, Hashimoto said after a speech carried on Reuters Financial Television.

 

The federal government depends on strong foreign buying of its bonds to help finance the national debt of $5 trillion, so a decline in purchases by the Japanese could cause severe strain in U.S. financial markets. Stock investors used Hashimotos remarks as an excuse to take profits. Analysts said stocks were set for a fall after the recent rally capped by Fridays rise in the Dow to a record 7,796.51.

In the broader market, declining issues swamped advances 1,771 to 816 on active volume of 492 million shares on the New York Stock Exchange.

While the Dows decline was the second-largest point drop ever, the Dow would have to fall about 600 points at current levels to rank as one of the top 10 losses in percentage terms.

The Treasury Department said Monday that the Japanese were already cutting back on their purchases of Treasury bonds. In the first quarter, Japan bought $12.9 billion of bonds and notes, down from $15.4 billion in the fourth quarter.

This is one of our vulnerabilities because the Japanese have been big buyers of our securities and obviously should that buying reverse itself, than that would not bode well for our market, said Jack Shaughnessy, director of research at Advest. He said he thought Hashimoto was just posturing as part of the ongoing debate over yen-dollar exchange rates.Prices fell in the bond market but not nearly as sharply as in stocks.

The 30-year Treasury lost 17/32, raising its yield to 6.70 percent from 6.66 percent on Friday. The price and yield move in opposite directions.

The dollar closed at 114.93 yen, up slightly from Fridays 114.85 close. The dollar slipped to 1.7185 German marks from 1.7287 late on Friday.

Elsewhere, wheat prices slumped as this years harvest progressed rapidly amid hot, dry weather in the Midwest.

At the Chicago Board of Trade, prices for soft red winter wheat for July delivery have fallen from the $4.59 a bushel peak in April as low as $3.28 Monday, the lowest in almost three years. July wheat settled 5 cents lower at $3.29-3/4.

Crude oil prices rose amid increasing tensions between the United Nations and Iraq and statements by Iran bemoaning the decline in oil prices.

August crude rose 25 cents to $19.14 a barrel at the New York Mercantile Exchange.

Overseas, Londons FTSE 100 fell 18.1 points to 4,575.8 and Tokyos 225-share Nikkei average rose 50.60 points to 20,436.14.