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VERDICT FAVORING SMOKER LOWERS STOCK MEASURES

SHARE VERDICT FAVORING SMOKER LOWERS STOCK MEASURES

A late afternoon verdict against a leading tobacco maker pulled most stock measures lower Friday, erasing slim gains on a tame inflation report that sent interest rates lower in the bond market.

The Dow Jones industrial average fell 32.18 to 5,681.31. But most of it came in the last half hour as Philip Morris shares plunged on news of a Florida jury's $750,000 damage award to an addicted smoker.The verdict against Brown & Williamson Tobacco will be appealed. But the potential crack in the cigarette industry's armor against smoker-liability suits sent Dow component Philip Morris and other tobacco shares sliding and provided investors with a late excuse to sell in an otherwise lackluster session.

Most indexes ended with a small loss, but the number of stocks that rose on the day exceeded the number of decliners on both the New York Stock Exchange and the Nasdaq Stock Market.

Philip Morris shares were halted with a 31/2 point loss at 102 on the New York Stock Exchange - the equivalent of more than 10 Dow points - but the stock wound up falling 145/8 to 907/8 in later trading on other markets, threatening the Dow with a 45-point slide at Monday's open. RJR Nabisco, another leading cigarette maker, plunged 41/4 to 28.

Bonds rallied Friday morning after the Labor Department reported that wholesale prices were unchanged in July, the latest in a stream of signals that inflation is not threatening to ruin a six-year economic expansion.

Many analysts had expected a 0.2 percent increase in the Producer Price Index, but the stock market failed to rally as long-term interest rates fell to their lowest level since early April.

"You've got a lot of the good news factored in here already," said Larry Rice, chief investment officer at Josephthal, Lyon & Ross, noting last week's rally on a series of mild economic readings. "The market had already gone a long way toward anticipating the good PPI news and interest rate scen-ar-io."

If anything, he added, "the PPI took the steam out of what could have been a fairly sharp rout" on Thursday evening's news that a widely watched gauge of semiconductor industry performance worsened last month, reversing a gain in June that had bolstered hopes for speedier growth.

Advancing issues outnumbered decliners by a 6-to-5 margin on the NYSE, where trading was light at 325.16 million shares as of 4 p.m., down slightly from Thursday's pace.

The NYSE's composite index fell 0.47 to 353.44, and the Standard & Poor's 500-stock index fell 0.49 to 662.10.

Despite a bad session for many semiconductor issues, technology-laden indexes held up fairly well: the Nasdaq composite index fell 0.24 to 1,137.27, and the American Stock Exchange's market value index fell 0.97 to 550.80.

Among chipmakers on the NYSE, Micron Technology fell 7/8 to 245/8; LSI Logic fell 11/8 to 225/8; Texas Instruments fell 1 to 463/4; Motorola fell 15/8 to 561/4; and National Semiconductor fell 3/4 to 151/2. But Intel bucked the trend in active Nasdaq trading, rising 15/8 to 823/8.

"If you're going to buy anything, you buy the creme de la creme. That's been the story of this rally," said Rice, referring to investors' preference for blue-chip stocks over more speculative issues in the market's rebound from July's bruising selloff.

After the PPI report, the yield on the 30-year Treasury bond - a key determinant of borrowing costs for business and consumers - slipped below 6.7 percent for the first time since early April, when inflation fears were growing rampant. Inflation makes a fixed-income investment less valuable, forcing a discount in bond prices to increase their yields.

The PPI report strengthened beliefs the Federal Reserve will not need to raise short-term interest rates later this month to hold prices in check. Higher interest rates and bond yields can hurt stocks by raising corporate borrowing costs and slowing consumer spending.

Overseas, Tokyo's Nikkei stock average fell 0.9 percent, Frankfurt's DAX index fell 0.5 percent, and London's FT-SE 100 ended slightly lower.