International Markets: New York - Stocks and bonds set to fall

US STOCKS may fall this week as companies warn that 1998 profits will fall short of lofty expectations. A slew of large companies will report on last quarter's earnings, including AT&T and General Motors on Monday and Coca-Cola and Gillette on Wednesday.

The outlook for bonds is also clouded, dragged down by a plunging dollar, allegations that President Bill Clinton asked a White House intern to lie under oath, and signs of stability in Asia. "Add all of those together and they don't present a very good argument for buying bonds," said David Duerson, at BancAmerica Robertson Stephens.

The benchmark 30-year Treasury bond yield rose 11 basis points on Friday to 5.97 per cent, the biggest one-day loss since 28 October. The dollar tumbled to a two-month low against the yen on signs that Japan's government will take more measures to help the economy out of a six-year slump.

"Weakness in the dollar is a clue for foreign investors to sell our market and bring money home," said Neil Toth, bond manager for the Ohio Public Employees Retirement System.

Stocks struggled last week as companies such as IBM and Sears Roebuck reported fourth-quarter earnings that generally met expectations, yet warned of 1998 profit shortfalls prompting analysts to cut earnings forecasts further.

"Earnings expectations for 1998 are still a problem that people haven't dealt with," said Tony Spare, chief investment officer at Spare, Kaplan, Bischel in San Francisco. "But at least now they're talking a little bit about the first quarter."

Wall Street analysts expect the companies in the S&P 500 to post earnings growth of 13.6 per cent in the current quarter, down from an estimate of 16.7 per cent just two weeks ago.

For the week, the Dow Jones Industrial Average dropped 0.7 per cent and the Standard & Poor's Index fell 0.6 per cent. The Nasdaq rose 0.8 per cent with the help of telecommunications equipment makers Andrew Corp and Qualcomm Inc, which reported an unexpected fourfold rise in profit.

The prospect of lower earnings because of the slowdown in South-east Asia helped send a number of stocks lower last week. Oilfield and drilling companies were the worst-performing groups, though, as the mild winter and slumping Asian demand pushed prices to a four-year low.

Merrill Lynch fell 9.4 per cent on Tuesday after reporting lower-than- expected fourth-quarter earnings. The firm said 1998 will be a tough year because of "recent events in Asia and unsettled conditions in US markets."

Copyright: IOS & Bloomberg