STOCKS : Mideast Fears Shake Market; Dow Falls 16.34

Jittery investors sent Wall Street stocks lower Thursday amid reports of heightened tensions in the Persian Gulf.

The Dow Jones industrial index fell 16.34 points to 2,518.81. The broader market also dropped, despite pockets of buying in the drug and technology sectors. Losing issues outnumbered gainers 9 to 7 in nationwide trading of New York Stock Exchange-listed stocks, with 839 down, 655 up and 514 flat.

But for the third day in a row, smaller stocks showed strength. The NASDAQ over-the-counter composite inched up 0.69 to 355.75.

On the Big Board, volume was a thin 140.92 million shares, down from Wednesday’s 145.49 million.

A news report that British troops in Saudi Arabia had been put on raised alert heightened tensions ahead of the U.N. Security Council vote to authorize force against Iraq.

Later, U.S. defense officials said they had no reports of any shots fired in the Persian Gulf.

“All sorts of rumors were afflicting the market,” said Peter Davies, analyst at Nomura Securities.

He noted that a prediction of imminent earthquakes in Tokyo and the Midwest added further to the general nervousness.

Alfred Goldman, analyst at A. G. Edwards & Sons, said he believes that a war, like the worry over a possible recession, has already been factored into stocks’ current prices. That’s why many investors are nibbling at a broad range of stocks, he said.

“We’ve got a lot of the same concerns we’ve had for the past four months. There isn’t anything new,” he said. “I think the bear market is over.”

Among the market highlights:

* McDonald’s led the Dow lower, off 1 1/8 to 28 after an analyst said the fast-food chain is considering permanent price cuts on most of its basic menu items. McDonald’s disputed the report.

* Selected drug stocks continued to gain. Upjohn rose 1 1/4 to 37 3/8, Lilly gained 1 1/2 to 73, Johnson & Johnson added 1 to 68 and Amgen rose 3/4 to 57 3/4. U.S. Bioscience was up on news it had received an exclusive license to a U.S. government patent on a treatment for pneumonia in AIDS patients. Its shares rose 1 3/4 to 16 7/8.

* In the technology sector, site of much buying of late, Compaq was up 1 3/4 to 54 1/4, AST Research rose 1 1/2 to 27 and Sun Microsystems added 5/8 to 20 1/2.

* Azusa-based Optical Radiation jumped 1 1/4 to 26 3/4. Twentieth Century Fox agreed to release six upcoming films in Optical’s Cinema Digital Sound format, a new movie sound system designed to bring CD-quality sound to the theater. Twentieth Century is the first major studio to commit a substantial number of films to CDS.

* Financial News Network slipped 1/4 to 2 3/4. The firm sees a loss of $72.5 million for the year ended last June 30, and a $25-million loss in the most recent quarter.

* Chalone fell 1/2 to 8 3/4. Investor William Hambrecht sold his 7.2% stake in the winery to Domaines Baron de Rothschild of France.

* On the down side, office products firm Nashua plunged 8 3/8 to 30 1/2 after the company said fourth-quarter earnings are expected to fall short of forecasts. Also, McDonnell Douglas fell 2 7/8 to 43 3/4 amid renewed investor concerns that the company may face big cost overruns on its C-17 military transport program. Forest products firm Louisiana Pacific fell 1 1/4 to 23 3/4 after saying it may lose money in the current quarter.

In Tokyo, stocks closed broadly lower in slow trading, with the blue chip Nikkei average sinking below the 23,000 level for the first time in a week. The index lost 341.28 points to 22,712.60.

At midday today, the Nikkei slumped another 778.61 points to 21,933.99, reacting to the U.N. vote against Iraq Thursday afternoon.

In London Thursday, share prices lost ground awaiting the U.N. vote. At the close, the Financial Times 100-share index was down 8.7 points at 2,135.6.

The German 30-share DAX index also ended little changed in very quiet trading. The DAX lost 1.70 points to 1,418.92.

CREDIT: Bond Prices Skid on Jobless Report Treasury bond prices fell after the government reported lower-than-expected unemployment filings, and as Persian Gulf tension increased.

The Treasury’s bellwether 30-year bond fell 17/32 point, or $5.31 per $1,000 in face amount. Its yield rose to 8.49% from 8.44% late Wednesday.

The unemployment filings suggested that the economy is stronger than thought, which could make it less likely interest rates will drop. Meanwhile, the threat of war--and with it soaring oil prices--spooked some bond investors.

The federal funds rate, the interest on overnight loans among banks, was quoted at 7.563%, up from 4% late Wednesday. The rate often fluctuates wildly on Wednesdays for technical reasons.

CURRENCY: Dollar Up Sharply as Tensions Rise The dollar surged in hectic trading, bolstered by worries that events in the Persian Gulf are moving closer to war. Investors sought a safe haven in the U.S. currency.

In New York, the dollar rocketed to 133.25 Japanese yen, its highest close in nearly two months, from 130.10 Wednesday. It leaped to 1.504 German marks from 1.486.

The U.S. currency gained as the U.N. Security Council began its debate on the use of force against Iraq if it doesn’t remove its troops from Kuwait.

Traders said the dollar’s gains came on the back of a rash of short-covering, which propelled it up through key technical levels that brought more buying. They said 1.496 German marks and 131 Japanese yen were key levels.

“The market has been overly short of dollars,” said John Elliott of Bank of America. “We cleared a lot of that out today.”

The dollar also was bolstered by worries about possible earthquakes in Tokyo and in the Midwest, as traders saw no other place to turn.

COMMODITIES: Corn Prices Up on Hopes for Sales Corn and soybean futures prices leaped on the Chicago Board of Trade on new signs of Soviet buying interest, but wheat futures fell to new 13-year lows under the weight of abundant world supplies.

In Chicago, corn futures settled unchanged to 4.5 cents higher, with the contract for delivery in December at $2.25 a bushel; soybeans were 5 to 8.50 cents higher, with January at $5.947 a bushel.

But wheat was 3.75 cents lower to 0.25 cent higher, with the contract for delivery in December at $2.39 a bushel, the lowest settlement of a near-term wheat contract since mid-1977.

Analysts said buying activity surged late in the session amid a flurry of rumors and reports that pointed toward an increased likelihood the United States will sell grain to the Soviet Union.

Meanwhile, oil prices fell in a choppy, rumor-driven market, ahead of the U.N. vote against Iraq. On the New York Mercantile Exchange, January crude oil ended 37 cents lower at $32.91 a barrel.

Gold finished $3.10 to $3.50 higher, with December at $388.90 an ounce; silver was 3.2 cents to 4 cents lower, with December at $4.09.