Who'da Thunk It? Trade Figures Send Stocks Stumbling

The higher-than-expected trade deficit, usually ignored on Wall Street, has contributed to today's weakness.
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If you told someone last week that the stock market would fall because the June trade deficit grew by more than people thought it would, you'd have been asked if you were on crack. Today that comment gets taken with a straight face.

Nobody can remember the trade numbers having an impact on the stock market before. Heck, they hardly ever have much of an effect on the dollar. But at a time when the stock market is spending a lot of time watching the deteriorating greenback, and the greenback is on weak technical footing, this morning's announcement that the trade gap ran to $24.6 billion is having an outsized effect.

The record trade deficit sounded the all-clear for a currency market that already seemed intent on testing the 110-yen level on the dollar. Stocks followed the dollar's swoon from the opening bell, and have stayed solidly in the red all day. "The dollar's getting smacked around, and that brings up some inflation fears and higher-interest-rate fears," said Jim Benning, trader at

BT Brokerage

. It also disquiets a market worried that capital is flowing away from the U.S. to recovering foreign economies.

"It doesn't look like anything too dramatic, but we're kind of slip-sliding away here," said Benning.

With the dollar trading down 0.86 yen to 111.09, the

Dow Jones Industrial

average was lately off 82, or 0.8%, to 10,909. The broader

S&P 500

was down 15, or 1.1%, to 1318. The tech-swathed

Nasdaq Composite Index

was down 38, or 1.4%, to 2620 and

TheStreet.com Internet Sector

index was down 10, or 1.7%, to 557. The small-cap

Russell 2000

was down 2, or 0.5%, to 431.

Yet market players cautioned against drawing too strong a relationship between the dollar and stocks. It is late August and the people who aren't on vacation are not trading too much ahead of next Tuesday's

Fed

meeting. With volume thin, it's good not to trust to much in anything. It doesn't take much to make the market skip a hundred points higher or lower in that kind of environment, said one money manager. "The bears are just pulling on the rope a little bit stronger."

"The general link between the dollar and the market is somewhat nebulous," said Steven Goldman, market strategist at

Weeden

in Greenwich, Conn. "At times it's highly correlated, at others it isn't."

Goldman supposes that the dollar really is playing something of a role in the market these days, but that it pales compared with interest rates. The dollar weakness "is showing that there's strength overseas," he said. "The abundance of liquidity that washed up on our shores is diminishing. It can affect equity prices -- especially when you have somewhat lofty valuations and the Fed being aggressive."

So far, though, the dollar weakness has only had a limited effect on the bond market, noted Goldman. That suggests that its final effect on equities may be muted.

The benchmark 30-year Treasury was off 6/32 to 101 20/32, its yield creeping up to 6.01%. (For more on the fixed-income market, see today's early

Bond Focus.)

On the

New York Stock Exchange

, decliners were leading advancers 1,758 to 1,032 on 388 million shares, while on the

Nasdaq Stock Market

, 2,147 decliners were beating 1,368 advancers on 508 million shares. New 52-week lows were outpacing new highs 56 to 29 on the Big Board, while new highs were ahead of new lows 42 to 36 on the Nasdaq.

Thursday's Midday Watchlist

By Tara Murphy
Staff Reporter

(

Earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified

.)

Surrendering after a brief game of cat-and-mouse,

Reynolds Metals

(RLM) - Get Report

agreed to be acquired by

Alcoa

(AA) - Get Report

in a stock swap valued at $4.4 billion. Reynolds shareholders will get 1.06 Alcoa shares for each Reynolds shares. Based on yesterday's closing prices, Alcoa will pay $70.89 a share for Reynolds, up from the $65 a share it bid when it began its $4.1 billion bearhug on Reynolds last week. The parties expect the deal to close by year-end. Shares of Reynolds slid 3 3/16 to 65 1/16, while Alcoa declined 1 3/4 to 65 1/8.

Mergers, acquisitions and joint ventures

Engage Technologies

(ENGA)

, a provider of profile-driven Internet marketing solutions and a majority-owned subsidiary of

CMGI

(CMGI)

, set a pact under which

Compaq

(CPQ)

made an investment in Engage. Shares of Engage were up 5/8 or 32 1/16, while CMGI was off 2 3/4 to 82 9/16. Compaq shares were up 1/4 to 23 3/4.

Separately, CMGI completed its acquisition of a majority stake in

AltaVista

, making Compaq the largest outside shareholder in CMGI, effective yesterday.

Motorola

(MOT)

was off 1 5/8 to 87 1/16 after it said its Semiconductor Products division forged a deal to buy software tool maker

Metrowerks

(MTWK)

for $95 million in cash, or $6.25 a share. Metrowerks' board gave the acquisition its stamp of approval and will recommend that shareholders tender their shares to Motorola. The companies expect the offer, which is subject to the tender of at least 77% of Metrowerks' common shares, to proceed within the next two weeks. Shares of Metrowerks were up 1, or 19.8% to 6 3/32.

NTL

(NTLI)

was down 2 1/8 to 96 1/4 after it agreed to buy

Workplace Technologies

of the U.K. for about $129 million in cash.

Sportsman's Guide

(SGDE)

was up 5/16, or 6.1%, 5 7/16 after it inked an deal with

America Online

(AOL)

to market the catalog and Internet retailer's online catalogs. Sportman's Guide said its catalogs will advertise in the new

Shop AOL

,

AOL.com

,

CompuServe

and

Netscape

online shopping Web sites.

Snapple

and

Mistic Beverage

holding company

Triarc

(TRY)

was off 5/16 to 21 5/8 after it announced plans to buy back about 6 million shares from corporate marauder Victor Posner in a two-year $127 million cash deal. Posner had acquired the nonvoting shares, which represent about a 24% interest, with the sale of his controlling involvement in Triarc's predecessor company to Triarc executives in 1993.

Earnings/revenue reports and previews

Hormel

(HRL) - Get Report

was up 1/8 or 38 1/2 after it posted third-quarter earnings of 40 cents a share, beating both the six-analyst estimate of 36 cents and the year-ago 28 cents.

Seagram

(VO) - Get Report

popped 3 3/16 to 53 5/16 after posting an operating loss of 32 cents a share, narrower than the seven-analyst estimate of a 42-cent loss but wider than the year-ago loss of 3 cents.

TD Waterhouse

(TWE)

was off 1/16 to 15 15/16 despite reporting third-quarter earnings of 8 cents a share, 2 cents ahead of the three-analyst estimate and up from the year-ago 4 cents.

Offerings and stock actions

HeadHunter.Net

(HHNT:Nasdaq) was up 9/16, or 5.6%, to 10 9/16 in its trading debut.

First Union Capital Markets

priced 3 million shares at $10 each, below the expected range of $12 to $14.

LaBranche's

(LAB)

was up 3/8 to 14 3/8 in its trading debut.

Salomon Smith Barney

priced the 10.5 million-share IPO below-range at $14 a share. LaBranche is a New York Stock Exchange specialist firm, the first specialist firm to go public. The estimated price range was $15 to $17.

Internet directory

Looksmart

(LOOK:Nasdaq) slashed its IPO's size to 9 million shares from 12 million shares, maintaining the expected price range of $11 to $13 a share. The stock is tentatively scheduled to make its trading debut tomorrow.

Telecom services firm

Orius

(ORS:NYSE) and Internet firm

Bamboo.com

(BAMB:Nasdaq) decided to wait out stormy market conditions and postpone their upcoming IPOs. Orius' 10.9 million-share IPO is expected to price at $13 to $15 a share through lead underwriter

Deutsche Banc Alex. Brown

. Bamboo.com, which provides virtual real estate tours via the Internet, cut its offering's size earlier to 4 million shares from 5 million shares, while reducing its expected price to $8 a share from $10 to $12.

Prudential Securities

is serving as the deal's lead underwriter.

Wink Communications

(WINK)

soared 16 1/2, or 103%, to 32 1/2 in its first day of trading, while

Netro

(NTRO)

leapt 7 1/2, or 93.7%, to 15 1/2 after pricing at $8 a share.

Analyst actions

AES

(AES) - Get Report

was up 3, or 5%, to 60 5/16 after it announced plans to buy

National Power's

Drax power station for $3 billion.

Goldman Sachs

upgraded the stock to its recommended list from market outperform.

Ameritrade

(AMTD) - Get Report

was down 1 5/8, or 6.8%, to 22 3/16, after

Lehman Brothers

cut its fourth-quarter estimates to a loss of 6 cents a share from a profit of 2 cents based on its "declining sequential revenues and higher-than-anticipated marketing costs."

Goldman Sachs upgraded

Birmingham Steel

(BIR)

to market outperform from market perform. Shares of Birmingham Steel were up 7/16, or 5.8%, to 8.

Cyberonics

(CYBX)

was up 1 1/4, or 8.6%, to 15 3/4 after

SG Cowen

started coverage with an initial buy rating and a price target of 21.

Morgan Stanley Dean Witter

initiated coverage of natural gas and oil companies

Equitable Resources

(EQT) - Get Report

and

Energen

(EGN)

with outperform ratings. Shares of Equitable Resources were up 1/2 to 38, while Energen was up 11/16 to 18 15/16.

Georgia Gulf

(GGC)

was up 1 7/8, or 14.4%, to 14 7/8 after Goldman Sachs upped its rating to its recommended list from market outperform.

Haemonetics

(HAE) - Get Report

was up 1/8 to 19 5/8 after

Merrill Lynch

began coverage with initial near-term accumulate and long-term buy ratings.

Questar

(STR)

was up 1/8 to 18 7/8 after Morgan Stanley analyst Dennis Higgins initiated coverage with an outperform rating and a price target of 23 on its shares.

Safeway

(SWY)

was off 5/16 to 47 1/4 despite

PaineWebber

initiating coverage of the stock with a buy rating.

Banc of America Securities

also praised Safeway, raising its price target to $80 from $75.

Tandy

(TAN) - Get Report

hopped 1 11/16 to 46 11/16 after Merrill Lynch retail analyst Peter Caruso placed the

Radio Shack

parent on its focus list.

Miscellany

CV Therapeutics

(CVTX)

rocketed 6 1/8, or 70.5%, to 14 13/16 after late yesterday reporting encouraging results from a Phase III trial of a heart drug.

Donaldson Lufkin & Jenrette

analyst Craig Parker upped its rating to a top pick from a buy.

Exxon

(XON) - Get Report

has suspended drilling in Russia amid an environmental and legal dispute with the government,

The Wall Street Journal

reported. Exxon said it stopped its drilling after the State Ecological Committee failed to endorse the company's drilling plan for an oil well at its $15 billion Sakhalin project in the Russian Far East, the newspaper reported. Shares of Exxon were off 15/16 to 81 5/8.