Thursday: Bulls Take a Breather Ahead of Jobs News

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By John J. Edwards III
Staff Reporter

Waiting for Washington. Or at least news from there.

After a three-day surge that yesterday put the

Dow Jones Industrial Average

above 7000 for the first time since March 12, the big-cap indices took a breather amid a close watch on the federal budget negotiations. The Dow dove as deep as 6913.46 intraday before recovering to a loss of 32.51 at 6976.48. The broader

S&P 500

fared slightly better, off 2.81 to 798.53. The bond market continued to improve, with the yield on the bellwether 30-year Treasury bond down to 6.92%.

While the Dow and the S&P stepped back, indices reflecting smaller stocks continued to improve. The tech-heavy

Nasdaq Composite Index

added 9.74 to 1270.50 and the small-cap

Russell 2000

inched up 0.31 to 338.40.

"It's about time," said Larry Rice, chief market strategist at

Josephthal Lyon & Ross

. "I was beginning to wonder whether we'd ever have a rally in the small-caps relative to the Dow Jones industrials. It certainly is a pleasure to see the broad base."

Indeed, overall breadth on the

New York Stock Exchange

was positive, advancers ahead of decliners by 1,455 to 1,016. Volume dropped from the hyperactive levels of the previous two sessions to a more moderate 460.4 million shares. On the Nasdaq, advancers beat decliners by 2,320 to 1,800 on volume of 626.3 million.

Grace Messner, head of equity management at

Wilmington Trust

in Delaware, said today was just another ordinary session in this time of extraordinary volatility. "I think it was a reflex sort of thing," she said of the recent big gains. "There's a hint of a better situation, but I think there's a lot of knee-jerk reacting going on. The volatility has been just incredible."

As for the budget talks -- which participants on both sides said are nearing conclusion -- Messner said the market effect has been overrated. "I don't think too many people are paying too much attention, because I think the assumption is that the two sides will come to some reasonable agreement," she said. "If you look at the size of the deficit relative to this economy, it's becoming a smaller and smaller factor."

The oft-overlooked

American Stock Exchange

has carved out a niche in options trading, and that niche is getting bigger and bigger. AMEX announced that April saw the heaviest options volume in the exchange's history. Combined volume for equity and index options reached 7,312,966 contracts, compared with the previous record of 7,266,071 set in October 1987. Year-over-year, April's volume was up 38.3% from April 1996.

3M

(MMM) - Get Report

said it agreed to sell its

National Advertising

unit to

Outdoor Systems

(OSIA)

for $1 billion, pending regulatory approval. Minnesota Mining edged up 1/8 to 87 1/8 and Outdoor Systems gained 2 to 29 3/4.

BankAmerica

(BAC) - Get Report

gave up 1 3/8 to 115 1/2 after the city of San Francisco sued its

Bank of America

unit for allegedly overbilling city entities for municipal bond services. Bank stocks were otherwise mixed, with Dow component

J.P. Morgan

(JPM) - Get Report

down 5/8 to 101 3/4,

Citicorp

(CCI) - Get Report

down 1/8 to 112 1/2,

Chase

(CMB)

up 5/8 to 92 3/4 and

First USA

(FUS)

up 1/2 to 48 5/8.

Internet access companies

America Online

(AOL)

and

CompuServe

(CSRV)

gained after they and

Prodigy Services

settled with the

Federal Trade Commission

over allegations that they rooked customers with "free trials" that weren't so free. Under the agreement, the companies will get written authorization from consumers before tapping their checking accounts electronically. How nice of them. AOL rose 1 7/8 to 47 and CompuServe added 1/8 to 9 3/8.

Airline stocks descended after

Merrill Lynch

lowered

United Airlines

parent

UAL

(UAL) - Get Report

to near-term neutral from buy and to long-term accumulate from buy. The firm cut

Alaska Air

(ALK) - Get Report

to near-term neutral from accumulate and to long-term accumulate from buy. UAL lost 2 1/2 to 71 7/8, Alaska Air fell 1/2 to 24 3/8,

Delta

(DAL) - Get Report

skidded 1 to 91 1/8 and

Southwest

(LUV) - Get Report

gave up 1 1/8 to 26 3/8.

KLA Tencor

(KLAC) - Get Report

-- the result of the recent merger of

KLA Instruments

and

Tencor

-- jumped 2 1/2 to 47 after CFO Bob Boehlke outlined the merger's expected benefits at the

Hambrecht & Quist

technology conference. He said the company had an annualized revenue run rate of $1 billion in the most recent quarter.

Tellabs

(TLAB)

climbed 1 1/4 to 41 after President Peter Guglielmi told the Hambrecht & Quist conference that he's comfortable with

First Call

estimates of $1.25 per share for Tellabs' 1997 earnings. Guglielmi declined to comment on rumors that Tellabs plans to buy

Fore Systems

(FORE)

, but he said Tellabs will continue to "look at strategic possibilities." Fore lost 1 1/8 to 14 1/4.

Speaking of market rumors,

CNBC

reported on some scuttlebutt flying about investor

Kirk Kerkorian

making a play for part of

Viacom

(VIA) - Get Report

. Kerkorian is said to be swapping out of

Chrysler

(C) - Get Report

and into Viacom. A Kerkorian underling had no comment. Viacom rose 2 1/4 to 28 3/4 and Chrysler was unchanged at 30.

Aames Financial

(AAM)

plummeted 3 1/8 to 12 1/4 after saying pricing changes on its third-party mortgages are expected to hurt results going forward. The company reported third-quarter earnings of 51 cents per share, in line with First Call's expectation and up from the year-ago 33 cents.

Quantum

(QNTM)

rose 1 to 42 3/4 after reporting fourth-quarter operating earnings of $1.12 per share, far ahead of the First Call view of 86 cents and the year-ago loss of $2.28.

PaineWebber

and

Robertson Stephens

upped estimates on the company.

Uniphase

(UNPH)

bounded 5 to 45 after

UBS Securities

started coverage at buy. UBS said the stock could appreciate to a minimum of 46.

USCS International

(USCS)

rallied 3 to 19 1/2 after reporting first-quarter earnings of 21 cents per share, beating First Call's estimate by 3 cents. The company made 12 cents a year ago. Merrill Lynch boosted the stock to near-term buy from accumulate, leaving it at long-term buy, and named it the firm's Focus One Stock of the Week.

Adobe

(ADBE) - Get Report

leapt 2 7/8 to 41 3/4 after

Standard & Poor's

announced that the company will be added to the S&P 500 Monday, replacing

Santa Fe Pacific Gold

(GLD) - Get Report

. Santa Fe was up 5/8 to 15 3/8.

The battle for

National Education

(NEC)

took another turn as

Harcourt

(H) - Get Report

said it might increase its offer to $21 per share from $19.50.

Sylvan

(SLVN)

said it plans to continue with its competing offer of $20.37 a share in stock. National gained 1/4 to 20 1/2, Sylvan rose 7/8 to 31 1/4 and Harcourt fell 1/2 to 45 3/4.

Starbucks

(SBUX) - Get Report

spent most of the morning higher but finished down 5/8 at 29 1/4. The ubiquitous coffee merchant reported an April same-store-sales increase of 6%. PaineWebber upgraded Starbucks to buy from attractive.

Steris

(STRL) - Get Report

followed a similar trajectory, ending off 1 1/4 at 31 1/2 after

Smith Barney

initiated coverage at buy. The move came two days after Steris reported fourth-quarter earnings of 45 cents per share, a nickel better than First Call expected and up from 20 cents a year earlier.

Toys R Us

(TOY)

added 1/2 to 29 after Merrill Lynch upgraded the stock to near-term accumulate from neutral. The firm maintained a long-term accumulate rating.