FINANCIAL MARKETS : Dow Stumbles in Anticipation of Report on Inflation : Market Overview

* The stock market stumbled as anticipation of widely awaited inflation figures and a steep selloff in one blue chip stock made for a skittish session.

* Corporations rushed out more than $2 billion in new bonds, moving aggressively to lock in some of the lowest interest rates in a generation before they head higher. Long-term interest rates edged lower.

* The dollar fell broadly amid sentiment that wholesale price statistics due out today would show inflation cooling off from levels of earlier this year.

Stocks

A tumble in a component of the Dow Jones industrial average, Minnesota Mining & Manufacturing, drove down the key market barometer. The industrial average lost 20.21 points to finish at 3,491.72, close to its lowest level of the day and its first finish below 3,500 since May 21.

Transportation stocks also suffered setbacks amid fears of higher fuel prices while other issues posted moderate losses.

In the broader market, declining issues outnumbered advances by about 4 to 3 on the New York Stock Exchange. Volume on the floor of the Big Board came to 232.60 million shares, down from 249.039 million on Wednesday.

Minnesota Mining & Manufacturing stock skidded 10 points to close at 105 3/4 after the company disclosed a disappointing projection for its second-quarter profit.

James Solloway, director of research at Argus Research Corp., said 3M is a bellwether of the economy, and the company’s revised earnings outlook renewed concerns about the country’s sluggish business activity.

The setback for 3M stock jolted an already edgy market. Wall Street has been nervous all week ahead of the government’s reports on producer prices, which is due today, and on consumer prices next Tuesday.

Estimates call for the Labor Department’s Producer Price Index to be unchanged, with the core rate, which excludes food and energy, rising a modest 0.2%. The report will be released before the market opens.

An unexpectedly strong PPI reading, however, could intensify fears that the Federal Reserve will nudge short-term interest rates higher. Low rates have helped propel the market higher for many months.

Economic reports from Washington failed to inspire much buying or selling enthusiasm on Wall Street.

Among the markets highlights:

* Trucking and airline stocks were hammered by speculation that an increase in transportation fuel taxes will be offered as an alternative to President Clinton’s broader energy tax proposal. AMR, parent of American Airlines, dropped 1 to 67, USAir fell 7/8 to 18 3/4 and United Airlines parent, UAL, shed 1 1/8 to 129 3/4. NASDAQ-listed trucking concern Roadway Services slumped 1 3/4 to 52 1/4.

* Among actively traded NYSE issues, PepsiCo headed the list and gained 3/4 to 35 5/8. Other heavily traded Big Board issues included Xerox, unchanged at 74 1/4, Walmart Stores, down 1/4 at 26 3/8, and Compaq, down 1 1/4 at 52 1/2.

* One conspicuous loser was Andrea Electronics, which has experienced exceptional trading volatility lately. The issue changed hands in heavy volume on the American Stock Exchange, losing 9 5/8 to 31 7/8. The company said the Securities and Exchange Commission is conducting an informal inquiry into trading activity in its stock.

In overseas trading, stocks closed lower in Tokyo and London. Tokyo’s 225-share Nikkei average lost 81.92 points to end at 20,493.32. In London, the Financial Times 100-share average fell 6.9 points to 2,860.0. The Frankfurt bourse was closed for the Corpus Christi break and will reopen today.

Credit

Thursday’s surge in corporate bond issuance brought the total since last Friday to nearly $8.5 billion, making this week so far the third busiest of the year.

“It’s been stepped up largely in response to the expectation that higher rates are on the way,” said John Lonski, senior economist at Moody’s Investors Service.

Many corporate treasurers expect the Federal Reserve to bump up interest rates in response to today’s producer price index and to next Tuesday’s consumer price report. Higher interest rates would help combat inflation, but would also boost the cost of corporate borrowing.

The Treasury’s main 30-year bond yield fell to 6.87% from 6.88% Wednesday. Its price, which moves in the opposite direction, rose 1/8 point, or $1.25 per $1,000 in face value in extremely light trading.

The federal funds rate, the interest on overnight loans between banks, was 3%, up from 2.5% late Wednesday.

Other Markets

The Japanese yen edged up to another all-time high against the dollar, closing in New York at 106.16 yen, down from late Wednesday’s 106.45 yen. Trading was heavily influenced by cross, or non-dollar trading.

The dollar’s decline to another postwar low against the Japanese yen was traced to speculation that trade talks between the United States and Japan would not be favorable for the U.S. currency. In addition, the dollar was hurt by growing concern in Asia about President Clinton’s sagging popularity.

Some traders said there were unsubstantiated reports that the Federal Reserve bought German marks and sold Japanese yen, possibly at the behest of a foreign central bank, during New York trading. The rumors helped boost the mark against the dollar, reversing a rise in the U.S. currency during European trading.

But in New York, the dollar fell to 1.630 marks from late Wednesday’s 1.636.

The British pound, meanwhile, posted big gains against the dollar in New York, settling at $1.527, more than late Wednesday’s $1.516.

Light sweet crude oil for July delivery settled 36 cents lower at $19.28 a barrel.

Meanwhile, gold declined for the fourth consecutive day on the Commodity Exchange in New York. Gold for current delivery fell $1.90 an ounce to $369.60 and silver for current delivery fell 3.4 cents an ounce to $4.301.