MARKETS: Dow Declines on IBM Drop : IBM Decline Drags Dow Down 19.18 : Market Overview

* Sideswiped by a selloff of market bellwether IBM Corp., blue chip stocks closed lower for a second straight session, with the Dow Jones industrial average falling 19.18 points to 3,365.14.

* Treasury bond yields fell sharply early in the day, then rebounded after the Treasury detailed its plans to sell $36 billion in bonds next week.

* Gold dipped below the psychologically important $350-an-ounce level, but some analysts said the downturn may be just a blip in a long-term rally.

Stocks

IBM hurt market sentiment after the company told Wall Street analysts that they expect little or no growth this year in the firm’s core business of mainframe computers.

The stock was weak all day and finished off 2 5/8 to 91 5/8, as some analysts cut earnings estimates. Wall Street had expected IBM’s mainframe business to make up for profit weakness in the personal computer business.

IBM officials gave a generally upbeat account of mainframe operations at their meeting with analysts, but their presentation made clear that mainframe revenues will actually decline from last year’s levels during the second half.

The IBM report weighed on a stock market already jittery in advance of Friday’s report on July unemployment.

On the New York Stock Exchange, declining issues outnumbered advances by about 10 to 7. Volume came to an estimated 172.45 million shares, up from Tuesday’s 166.76 million.

The general lack of participation in the market this week is allowing some stocks to fall of their own weight, consolidating after last week’s big rally, traders said.

“People are just taking a cautious tack going into Friday’s (economic) report,” said William Raftery, analyst at Smith Barney.

But he noted that the Dow’s 30-point drop in two days was not surprising after its sharp gain of more than 100 points last week.

“This could still be part of all this digestion of last week’s gain,” added Harry Laubscher of Tucker Anthony. “But people are still worrying and wondering about the economic news due Friday.”

Among the market highlights:

* Auto stocks continued to slump on worries about weakening sales. A higher unemployment report on Friday could hurt the auto stocks further, some traders warned, if it scares more consumers out of the new-car market. GM dropped 1 1/8 to 39 1/8, Ford fell 7/8 to 43 1/4 and Chrysler slipped 1/4 to 21 7/8.

* Airlines also dragged the market down, as analysts warned that fall fare wars may cost the industry even more red ink than the summer fare wares. On Tuesday, Delta cut passenger fares on its European routes by as much as 40% as intense price competition in the industry persisted.

Wednesday, Delta shares fell 1 3/8 to 53, United Airlines parent UAL slid 5 1/4 to 105 5/8, American Airlines parent AMR dropped 2 5/8 to 63 and USAir slid 1/2 to 12 7/8. Most airline stocks are trading at or near 52-week lows.

* Despite the renewed economic gloom, many industrial issues finished higher on the day. Eaton gained 1 1/4 to 79 1/8, Ingersoll Rand rose 5/8 to 28 1/8, ITT was up 3/4 to 67 3/4, Du Pont added 1/2 to 53 3/4 and Trinova rose 5/8 to 25 1/8.

* Utility stocks were weak after their recent sharp gains. Illinois Power tumbled 4 3/4 to 20 1/4. The company said a preliminary action by state regulators raised the prospect that it might have to write off about $200 million, raising questions about future dividends.

* U.S. Surgical, one of the highest-flying stocks of 1991, continued to sink. It lost 5 1/4 to 83 3/4. Some analysts have lately questioned whether the company’s earnings will grow rapidly enough to meet investors’ high expectations.

* Clorox fell 3 3/8 to 44 7/8 after announcing a writedown of certain assets and projecting that earnings in the current fiscal year will be on the low end of Wall Street’s expectations of $3.05 to $3.20 a share. The Oakland-based company, under a new CEO, is planning to focus more on its core cleaning products.

* Among other big losers, Egghead plummeted 6 5/8 to 11 7/8. The computer software retailing company said earnings for its fiscal first quarter ended July 18 won’t live up to Wall Street expectations.

In the biotech sector, Chiron dropped 5 1/2 to 51 1/2. It posted a second-quarter loss of 13 cents a share, against a 14-cents-a-share operating profit a year earlier.

Overseas, shares closed higher in Frankfurt after the market switched direction at mid-session. The DAX index closed up 17.30 points at the day’s high of 1,628.81.

London’s Financial Times 100-share average closed at 2,392.8, down 14.7 points.

Stocks ended firmer in Tokyo, but the Nikkei average failed to hold the 16,000 level it regained during the day. The index closed up 291.05 points at 15,983.64.

Credit

The price of the Treasury’s main 30-year bond ended the day up 1/32 point, or about 31 cents per $1,000. Its yield, which falls when prices rise, was 7.42%, down from 7.43% Tuesday.

But bond yields were much lower early in the day, on expectations that the Treasury would make a smaller offering of 30-year bonds at its quarterly auction next week.

The speculation was that with short-term interest rates low, the Treasury would want to issue more shorter-term securities than longer-term bonds.

But when the auction details were released in the afternoon, bond traders were disappointed: The total amount of securities the government said it will sell next week--$36 billion--was unchanged from the last auction May 15, and there was no reduction in the 30-year bond plans.

That took the steam out of the bond rally, which had sent the price of the 30-year bond up as much as 1/2 point, or $5 per $1,000.

The Treasury’s auction next week will be comprised of $15 billion in three-year notes, $11 billion in 10-year notes and $10 billion in 30-year bonds.

The federal funds rate, the interest on overnight loans between banks, was quoted at 3%, down from 3.188% late Tuesday.

Commodities

Gold for August plunged $3.50 to $349.20 an ounce on New York’s Comex, the lowest since July 14 and a significant setback for the market, which had been rallying.

Gold had climbed from less than $340 in mid-May to more than $360 by late July.

The selloff of gold futures was led by trend-watching commodity funds, according to Bette Raptopoulos, metals analyst with Prudential Securities.

Gold fell $4.80 an ounce Monday in reaction to the relatively quiet start of a two-day black workers strike in South Africa, a major gold producer, but Wednesday’s action was prompted more by technical factors, analysts said.

That means the longer-term rally may still be intact, they said.

Meanwhile, silver for September rose 1 cent to $3.89 on the Comex.

Elsewhere, oil prices fell on the New York Merc after the International Energy Agency reported that five OPEC nations raised their production last month to push the cartel more than half a million barrels a day over its self-imposed output ceiling.

Oil also is being pressured by rising inventories in the U.S.

Light, sweet crude oil for September fell 17 cents to $21.18 a barrel.

Currency

Helped in part by weakness in the British pound, the dollar rose against most currencies.

The British pound had trouble in trading with the German mark and was not supported by the British central bank or the U.S. Federal Reserve, said Jack Adkins, a currency analyst with the Refco Group in Chicago.

“That seemed to lead all the currencies lower and that benefited the dollar,” Adkins said.

In New York, the dollar rose to 1.482 German marks and 127.50 Japanese yen, from Tuesday’s 1.477 marks and 127.25 yen.

The British pound fell to $1.908, off from $1.920 Tuesday.