FINANCIAL MARKETS : Dow, Dollar Tumble; Yields Rise : Market Overview

Stocks fell amid renewed concern that inflation and higher interest rates are on the horizon and might hurt corporate profits.

* Bond yields inched up on rumors of stronger than expected economic figures and in advance of the May inflation report due Friday.

* The dollar tumbled to another postwar low against the yen as the Clinton Administration laid out a tough strategy for trimming Japan’s massive trade surplus.

Stocks

Many gaming, technology and financial stocks--most of which have risen sharply in recent weeks--fell for a second day.

Overall, stocks drifted lower with little conviction, as negative sentiment about inflation and interest rates again hit the market.

The Dow Jones industrial average fell 21.59 points to 3,510.54.

In the broad market, declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange. But trading volume remained moderate at 240.64 million shares.

The NASDAQ market also was broadly lower. The NASDAQ composite index fell 6.87 points, or 1%, to 687.74.

“The market is in a state of uncertainty,� said James Melcher, president of Balestra Capital.

Investors have turned cautious ahead of action on President Clinton’s economic plan and, more immediately, Friday’s reading of May producer prices and next Tuesday’s report on May consumer prices, Melcher said.

Analysts said investors worry that inflation will eat into corporate profits and force the Federal Reserve to raise short-term interest rates.

Among Tuesday’s highlights:

* Gaming stocks were hit by heavy profit taking for a second day. Caesars World fell 1 1/2 to 45 1/2, Grand Casinos plunged 6 to 37 3/4, Mirage slid 2 7/8 to 41 5/8 and Casino Magic tumbled 6 5/8 to 63 7/8.

Hersh Cohen, president of Shearson Asset Management, said the selloff in some of the more speculative issues was probably healthful. “It sobers people up,� he said.

* Technology stocks followed Apple Computer down after more analysts lowered earnings estimates for the company. Apple dropped 1 1/4 to 49 1/2, Intel fell 1 1/2 to 56 5/8, Newbridge Networks sank 3 to 79 and PowerSoft dropped 1 3/4 to 31. However, Compaq rebounded 2 1/8 to 58 1/8 and Adobe Systems rose 1 3/8 to 64 5/8.

* Financial stocks, which tumbled Monday on concern about higher interest rates and their impact on bank and brokerage profits, ended mixed. BankAmerica fell 3/4 to 41 1/4, Golden West eased 5/8 to 40 1/4 and Schwab went down 1/2 to 23. But Citicorp rose 1/4 to 26 5/8 and Wells Fargo added 7/8 to close at 96 5/8.

* Deluxe Corp., which controls more than 50% of the U.S. check-printing market, plunged 6 to 39 5/8 after the company issued a downbeat earnings outlook.

* On the up side, Telmex rebounded 1 5/8 to 46 5/8. Brokerage firm County NatWest raised its rating on the Mexican phone company to “buy� from “accumulate,� citing a recent drop in the stock.

Overseas, stocks were mixed. In Tokyo, the Nikkei average closed 268.95 points off, at 20,575.24.

In London, the FTSE-100 average slipped 0.4 point to close at 2,844.4. In Frankfurt, the DAX average finished at 1,661.61, up 6 points.

Credit

Interest rates moved up slightly, awaiting Friday’s report on producer price inflation in May.

Bond traders said investors were mostly sidelined by continued speculation as to what the Federal Reserve will do if the indicators show inflation rising.

Economists expect to see a 0.1% rise in May producer prices after a surprising 0.6% surge in April.

“It could be open season for the Fed to raise rates if we have any rise again on the PPI,� said Jack Solomon, a technical analyst at Bear Stearns.

The yield on the Treasury’s main 30-year bond rose to 6.91% on Tuesday from 6.87% on Monday. Shorter-term rates also inched up.

The bond market was riled early in the day by rumors that the Johnson Redbook report on retail sales for the first week of June would show a big gain. The numbers actually came in below expectations, but that didn’t seem to help bonds in late trading.

The federal funds rate, the interest on overnight loans between banks, fell to 2.875% from 3% on Monday.

Other Markets

Although the dollar fell to a new low against the Japanese yen, it gained ground against several other leading currencies as traders sold European denominations to buy up more yen.

Dealers said the session was characterized by massive yen buying that began overnight in Asian markets. Purchasing of the Japanese currency continued throughout the European and domestic sessions and dominated trading.

The dollar closed at 106.40 Japanese yen in New York, compared to 107.25 yen Monday.

Traders saw indications that the Federal Reserve and the Bank of Japan stepped in to buy dollars, as they reportedly did in recent days, in an attempt to stem the greenback’s decline. The dollar appeared to stabilize, but the intervention was not considered substantial enough to lift the dollar much off its lows.

Much of the yen buying came at the expense of European currencies, and the dollar was caught in the cross-fire, said John McCarthy, foreign exchange manager at ABM-AMRO Bank.

Meanwhile, the greenback settled at 1.625 German marks, up from 1.621 the day before.

The British pound closed at $1.520, less expensive than Monday’s $1.522.

In commodities trading, crude oil futures gained on the New York Mercantile Exchange but finished off the day’s highs due to continued disagreement among members of OPEC over limits on production.

The Organization of Petroleum Exporting Countries is meeting in Geneva to set third-quarter production levels and to allocate member quotas.

Light, sweet crude oil for July delivery settled 11 cents higher at $19.65 a barrel.

Elsewhere, gold futures were mostly unchanged; silver futures were lower on New York’s Commodity Exchange.

Gold for current delivery settled at $374 an ounce, unchanged from Monday. Silver for current delivery settled 1.7 cents lower at $4.39 an ounce.

Market Roundup, D6