STOCKS : Investor Fears Dampen Fed Cuts; Dow Up 10.89

The Federal Reserve’s long-awaited move to cut interest rates gave stocks a boost Tuesday, but the celebration soon fizzled as investors fretted about the timing of an economic recovery.

The Dow Jones industrial average jumped about 31 points after the Fed cut the discount rate--the key rate it charges banks for loans--to 5.5% from 6%.

But the Dow then gave back most of its gains and drifted for much of the session. It ended just 10.89 points higher at 2,887.87, after falling 35.40 on Monday.

Other market indexes finished mixed. And on the New York Stock Exchange, advancing issues narrowly outnumbered declines, with 843 up and 757 down.

More significantly, Big Board volume was a heavy 204.93 million shares, up from Monday’s 149.86 million. The rise in volume from the depressed levels of recent weeks could be a signal that the market is on the verge of a major shift, traders said.

Despite the Fed’s rate cut, investors seemed concerned that lower rates could be too late to help the economy and corporate profits soon. (Market Beat column, D3.)

A new report on factory-goods orders on Tuesday showed that they fell in March for the fifth straight month, further alarming investors.

The big question now is how quickly bargain-hunters will enter the market, as sellers try to take profits. If potential new buyers want prices to fall at least 10% from the April peaks before they’ll jump in, the Dow could hit 2,700 before stabilizing, traders note.

Among the market highlights:

* Tech stocks suffered a renewed pounding on economic worries. IBM fell 1 7/8 to 103 after the firm’s chairman repeated a cautious 1991 outlook to shareholders on Monday. Other tech stocks tumbling included Apple, down 3 1/4 to 55; Intel, off 1 1/8 to 49 1/4; International Rectifier, down 2 to 20 3/8, and Compaq, down 1 3/8 to 49 1/2.

* Despite renewed concerns about the economy, many industrial stocks finished higher. Analysts said some of the stocks are perceived to be so cheap that investors are reluctant to sell, even with further economic weakness evident. Ingersoll-Rand rose 5/8 to 45, Tenneco added 3/4 to 41 7/8, Illinois Tool Works gained 3/4 to 55 1/2 and Dow Chemical rose 1 1/4 to 50 1/4.

* Food stocks, safe havens in a bad economy, saw renewed buying. Pepsico jumped 1 3/8 to 31 7/8 after a selloff on Monday. Kellogg gained 1 to 91, Coca-Cola added 1 3/8 to 52 3/4 and Anheuser Busch rose 1 3/4 to 51 3/8.

* Amgen tumbled 5 to 126 3/4, dragging most other biotech stocks lower. Technical analyst Stan Weinstein and a Prudential analyst downgraded their Amgen ratings. Health-care stocks in general were weak. Weinstein also downgraded his opinion on U.S. Surgical, which lost 7 1/8 to 104.

* Pinkerton’s rose 3/8 to 26 3/8. A new offering of 2 million shares was priced at $26.

In foreign markets, Tokyo’s 225-share Nikkei average slipped 12.43 points to end at 26,111.25.

German stocks fell ahead of today’s May Day public holiday. The 30-share DAX average ended down 14.49 points at 1,605.79. In London, the Financial Times 100-share average closed down 12.0 points at 2,486.2.

Credit

Bonds staged a muted rally after the Fed’s discount-rate cut.

The Treasury’s bellwether 30-year bond rose 15/32 point, or $4.69 per $1,000 in face amount. Its yield fell to 8.18% from 8.22% Monday.

Shorter-term securities reacted most strongly to the Fed’s cut. One-year T-bill discount rates fell to 5.71% from 5.82% on Monday. But longer-term bond yields were kept high by traders who fear that inflation could surge because of the Fed’s easy-money policy.

In addition to the discount cut, the Fed signaled a lower target on the key federal funds rate of 5.75%, from 6%. The rate was quoted at 5.94% Tuesday.

Currency

The dollar plunged as U.S. interest rates fell.

Lower interest rates cut the return on dollar-based investments, reducing the attraction of holding dollars. The U.S. currency, which hit 1.78 German marks on Monday--highest in nearly 17 months--plummeted to 1.707 marks in New York on Tuesday.

“People scrambled in the 11th hour to get rid of the dollar. And there is no reason the dollar will not continue to come off a bit,” said Varick Martin, vice president at Manufacturers Hanover Trust.

The dollar also fell against the Japanese yen, to 136.15 from 136.50 on Monday.

Commodities

Prices of cotton futures reached a 10-month high on the New York Cotton Exchange after a government report confirmed that heavy rain has seriously hampered spring planting in the Mississippi Delta.

Cotton futures ended 0.10 cent lower to 1.06 cent higher, with the contract for delivery in May up 0.48 cent at 90.73 cents a pound, the highest settlement of a near-term cotton contract since July 6.

Elsewhere, precious metals rose strongly as some traders bet the Fed’s rate cuts will lead to new inflation. On New York’s Comex, gold futures settled $3.10 to $3.60 higher, with June at $357.70 an ounce; silver was 4.9 to 5.4 cents higher, with May at $3.97.

Light, sweet crude oil futures settled 3 to 30 cents lower, with June at $20.96 a barrel.

Market Roundup, D6