FINANCIAL MARKETS : Dow Jones Slowed by Blue Chip Setbacks : Market Overview

* Uncertainty about the economy’s strength and President Clinton’s budget proposals helped push the market to a mixed finish, despite a better than expected report on inflation.

* Although Treasury bond yields dropped immediately following the release of the consumer price index, yields finished slightly higher.

Stocks

The market instead seemed preoccupied by setbacks in big-name stocks such as IBM, Kodak and Alcoa, analysts said.

The Dow Jones industrial average fell 22.69 to 3,492.00, on Big Board volume of 234.11 million shares, up from 216.21 million the day before. Advancing issues narrowly outnumbered declines on the New York Stock Exchange.

Early in the day, the Labor Department said its consumer price index edged up only 0.1% in May after a worrisome 0.4% rise in April. Economists had forecast a 0.2% increase for May.

The data confirmed last week’s report on producer prices, which also showed only mild inflation. With both sets of numbers low, Wall Street fears diminished that the Federal Reserve would raise short-term interest rates anytime soon.

Michael Metz, an investment strategist at Oppenheimer & Co. said the market had forecast a low inflation number and already acted on that information in the days leading up to Tuesday’s report.

“It’s a case of the good news being out,” Metz said.

Alfred Goldman, an analyst, with A.G. Edwards & Sons Inc. in St. Louis, said investors were waiting for something to pull the market from the doldrums.

Also hurting stock prices was the activity ahead of Friday’s so-called “triple witching” expiration of stock index futures, stock index options and options on individual stocks, Metz said. The stock market is often volatile ahead of expirations.

And stocks received no support from foreign markets. Tokyo’s Nikkei average fell 351.47 points, or 1.72%, to 20,045.88, ending just above the psychologically important 20,000 mark. In Frankfurt, the DAX-30 average lost 7.88 to close at 1,684.10. London’s Financial Times 100-share average closed 15.5 points weaker at 2,870.0.

Among the market highlights:

* Reebok fell 5 1/4 to 29 after the company forecast poor second-quarter earnings and a Merrill Lynch & Co. analyst downgraded the stock. The news helped depress Nike, which dropped 1 1/2 to 66 5/8.

* Eastman Kodak fell 1 3/8 to 52 3/8 after advancing Monday. The company announced it will spin off its chemical group to concentrate on its core business.

* IBM dropped 2 1/8 to 49 7/8 after a Salomon Bros. Inc. analyst cut his earnings estimates for the company.

* National Semiconductor rose 1/2 to 15 3/4 after reporting higher earnings for the quarter ended May 30.

* DuPont fell 1 3/4 to 49 3/4 after Goldman, Sachs & Co. cut its investment rating on the company and reduced its 1993 and 1994 earnings estimates.

* Tiffany rose 2 7/8 to 31 3/8 after announcing it had assumed marketing and merchandising for 29 stores in Japan currently operated by Mitsukoshi Ltd.

* Cabletron Systems rose 5 3/4 to 107 3/4 after favorable comments on the company’s potential earnings from a First Boston Co. analyst.

* In NASDAQ trading, Cracker Barrel fell 4 to 28 1/2 after an analyst downgraded the stock. Snapple Beverage rose 2 1/2 to 37 after positive comments from analysts.

Credit

The yield on the Treasury’s main 30-year bond initially fell to 6.79% after the inflation report’s release, but then rose as the day wore on. By closing, the long bond’s yield had risen to 6.82% from 6.81% on Monday. Its price finished down 1/8 point, or $1.25 per $1,000 in face value. Yield and price move in opposite directions.

News of steady prices supports bonds because high inflation can erode the value of fixed-income investments.

Elliott Platt, research director at Donaldson, Lufkin & Jenrette Securities Corp., said the 30-year issue declined as traders took profits following release of the inflation report.

“The serious bets in inflation were made on Friday,” said Platt.

He referred to the market’s strong rally Friday after the government reported that producer prices were unchanged in May. That led many analysts to conclude the Federal Reserve Board would delay any increase in interest rates as a means to control inflation.

In other trading, short-term Treasuries rose between 1/8 point and 7/32 point, and intermediate maturities rose up to 7/32 point, the Telerate Inc. financial information service reported.

The federal funds rate, the interest on overnight loans between banks, held at 3.06%, unchanged from late Monday.

Other News

The dollar jumped nearly 2 pfennigs in a broad rally sparked by speculation that Germany’s central bank will cut interest rates this week.

As waves of dollar-buying swept the New York market, the U.S. currency bounced off record lows against the Japanese yen reached earlier during Asian trading, where global currency activity begins.

The dollar closed at 1.646 German marks in New York, up from 1.629 on Monday.

The speculation of a German rate cut overshadowed anxiety over the U.S. inflation report. The dollar’s rise also seemed tied to reports that U.S. merchandise trade figures for April, due out Thursday, will show a narrowing of the U.S. trade deficit with Japan.

That seemed to relieve some pressure for a stronger yen. In theory, a higher yen would help trim the U.S. trade deficit by making Japanese products more expensive abroad while decreasing the cost of imports to Japan.

The dollar closed at 105.75 Japanese yen, up from late Monday’s 105.10 yen. The British pound fell to $1.516, less than late Monday’s $1.527.

Meanwhile, in commodities trading, gold soared amid heavy buying by fund managers. On the Commodity Exchange in New York, gold for current delivery jumped $4.30 an ounce to $369.60. Silver also rose sharply, rising 7 cents an ounce to $4.282.

Traders said there was a buying spurt in gold after the computers came back up at the Commodities Exchange Center. They said speculators who had sold borrowed futures, anticipating they could earn a profit if the price went down, wanted to even their positions in case there were more disruptions.

Elsewhere, crude oil futures slumped lower at the New York Mercantile Exchange, with the July delivery hitting a life-of-contract low of $18.55. The light sweet crude oil settled at $18.58 a barrel, down 31 cents.

Market Roundup, D6