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DIP OFFERS NEW PROOF ECONOMY IS SLOWING

The government's chief forecasting gauge of future economic activity fell 0.2 percent in February, its biggest drop in 19 months, providing new evidence the economy is slowing.

Despite record-setting increases in stock prices, the Index of Leading Economic Indicators declined for only the second time since mid-1993, the Commerce Department said Wednesday.The last time the index fell as much was July 1993 when it also slipped 0.2 percent. The gauge was unchanged in January and rose 0.2 percent in December.

Only three of the 11 components in the gauge advanced in February, led by higher stock prices.

The Dow Jones industrial average set another record Tuesday, surging past 4,200 for the first time, as blue chip stocks paced the rally on Wall Street.

Analysts said investors are encouraged by recent signs the economy is slowing to a pace that can be sustained without inflation. That could convince the Federal Reserve not to raise interest rates again after seven increases since February 1994.

Hope the economy will grow moderately has helped offset worries over the falling U.S. dollar, analysts said. Despite efforts by the Clinton administration and the Fed to prop it up, the dollar has continued to slide - falling again Wednesday against other major currencies in early European trading.

The drop in the Index of Leading Economic Indicators was larger than the 0.1 percent decline many analysts predicted.

Besides higher stock prices, the other factors that made positive contributions to the index were more unfilled orders for durable goods and more business orders for plant and equipment.

The biggest contributor to the gauge's decline was the largest drop in raw material prices since November 1992, a development likely to allay any lingering inflation worries.

Other factors contributing to the index's drop were a smaller money supply, declining orders for consumer goods, falling consumer expectations, a shorter average work week, fewer building permits and higher average weekly initial claims for unemployment insurance.

Business delivery times were unchanged from January.

The Index of Leading Economic Indicators is aimed at predicting activity six to nine months down the road. Three straight moves by the index in the same direction are considered a good gauge of where the economy is headed.

The economy grew 4.1 percent in 1994, its best showing in a decade, and closed out the year by advancing at a booming 5.1 percent annual rate in the fourth quarter.

Higher interest rates are helping to slow the economy, as consumers curtail home and car buying.

The Federal Reserve doubled short-term interest rates, from 3 percent to 6 percent, in stages over the past 14 months.