FINANCIAL MARKETS : Dow Drops 23.50 Amid Profit Taking : Market Overview

* Blue chip stocks closed lower for a second straight session as investors again cashed in profits from last week’s 82-point rally that carried the Dow Jones industrial average to new highs.

* The Treasury market’s key long-bond yield drifted higher in thin activity influenced by worries that the dollar’s plunge on world currency markets might aggravate inflation.

* The dollar tumbled to the latest in a series of postwar lows against the Japanese yen, closing in on the psychologically important 110-yen level.

Stocks

Drug stocks bucked the trend and moved higher. The issues have tumbled in recent weeks because of President Clinton’s confrontation with the industry over pricing.

The Dow Jones industrial average fell 23.50 points to 3,443.49.

Declining issues outnumbered advances by about 9 to 5 on the New York Stock Exchange. Big Board volume was heavy at 317.99 million shares, up from Monday’s 244.71 million.

Analysts said a selloff in bank issues and other stock sectors hurt sentiment.

“This is just a consolidation of the run-up. Some large cap stocks are under pressure,” said Richard Meyer, manager of institutional trading at Ladenburg Thalmann.

But the experts also thought the market was ripe for a correction following last week’s string of gains.

Larry Wachtel of Prudential Securities said Friday’s close, which took the Dow industrials to an all-time high but saw the NASDAQ index fall, showed a negative technical divergence.

In such cases, he said, “sooner or later the blue chips have to come down to meet the rest of the market.”

* Among drug companies, Merck & Co. rose 1 5/8 to 37 1/2, Pfizer added 3 1/4 to 65 1/8, U.S. Healthcare surged 3 to 43 1/2 and Warner-Lambert gained 1 3/8 to 75.

* Struggling computer giant International Business Machines rose 1 3/8 to 50 5/8 after posting a first-quarter loss of $285 million, which was expected.

* On the list of bank shares, Chemical Bank lost 3/8 to 40 1/4. Citicorp was down 3/8 to 28 3/4, despite an upbeat earnings report for the first quarter. Some of the selling was linked to profit taking after recent gains.

* Mellon Bank, which posted disappointing results because of a restructuring charge, lost 1 7/8 to 59 3/4.

* On the NASDAQ, Intel Corp. rose 3 1/4 to 101 and Medco Containment gained 2 1/8 to 30 5/8. U.S. Healthcare jumped 3 to 43 1/2.

Overseas, Tokyo’s 225-share Nikkei average closed 283.91 points lower at 19,828.43.

Stock prices moved higher in London, with the Financial Times 100-share average closing up 26.1 points at 2,856.1. Frankfurt’s DAX 30-share average finished down 6.19 points at 1,687.11.

Credit

The yield on the Treasury’s 30-year bond rose to 6.75% from 6.72% late Monday. Its price, which moves inversely to the yield, sagged 11/32 point, or about $3.34 per $1,000 in face amount.

Prices of short-term Treasuries were slightly higher to unchanged.

The Treasury market suffered from a lack of compelling economic data. Pressuring the long bond were fears that the dollar’s decline of about 12% so far this year against the Japanese yen will drive up the cost of imports. Inflation erodes the value of fixed-income securities such as bonds.

A Commerce Department report that said housing starts slumped 4.6% nationwide in March went virtually ignored.

The federal funds rate, the interest on overnight loans between banks, slipped to 2.813% from 2.875% late Monday.

Other Markets

Currency trading was light but volatile, with the dollar falling against the yen on Asian markets but then holding ground in New York.

The dollar also fell against most major European currencies but managed to end unchanged against the German mark, largely due to heavy cross-selling, in which traders sold marks mostly to buy yen and British pounds.

In New York, the dollar fell to another record low of 110.55 yen, down from late Monday’s 111.10 yen. The dollar closed at 1.597 German marks, unchanged from the previous session. The British pound fetched $1.547, more than late Monday’s $1.543.

Meanwhile, in commodities trading, gold slipped in New York after rising overseas. On the New York Commodity Exchange, gold for current delivery fell 40 cents an ounce to settle at $339.90. Silver went in the opposite direction, rising 1.7 cents to $3.924 an ounce.

On the New York Mercantile Exchange, light, sweet crude oil for May delivery fell 15 cents to $19.84 a barrel.

Market Roundup, D6