The Second U.S. Circuit Court of Appeals opinion in the Arcadian Phosphate case did not repudiate the position Pennzoil Co. took in its dispute with Texaco, contrary to your Sept. 8 article "Court Backs Texaco's View in Pennzoil Case -- Too Late."

The fundamental rule of contract law applied to both cases was that courts will not enforce agreements to which the parties did not intend to be bound. In the Pennzoil/Texaco litigation, the courts found Pennzoil and Getty Oil intended to be bound; in Arcadian Phosphates they found there was no intention to be bound.

Admittedly, the principle in the cases is the same. But the outcome of a legal dispute almost always turns on the facts. And the facts, as found by the various courts in these two lawsuits, were different.

When you suggest otherwise, you leave the realm of reporting and enter the orbit of speculation.

Charles F. Vihon

Boston

Valley Federal Savings & Loan Association said Imperial Corp. of America withdrew from regulators its application to buy five Valley Federal branches, leaving the transaction in limbo.

The broken purchase appears as additional evidence of trouble at Imperial Corp., whose spokesman said the company withdrew its application from the federal Office of Thrift Supervision because of an informal notice that Imperial's thrift unit failed to meet Community Reinvestment Act requirements.

The Community Reinvestment Act requires savings and loan associations to lend money in amounts related to areas where deposits are received.

The transaction, announced in August, included about $146 million in deposits at the five outlets in California's San Joaquin Valley. Terms weren't disclosed, but Valley Federal had said it expected to post a modest pretax gain and to save about $2 million in operating costs annually.

Valley Federal said Friday that it is considering whether to seek another buyer for the branches or to pursue the transaction with Imperial Corp., which said it is attempting to meet Community Reinvestment Act requirements.

Valley Federal, with assets of $3.3 billion, is based in Van Nuys. Imperial Corp., based in San Diego, is the parent of Imperial Savings & Loan. In the first six months of the year it posted a net loss of $33.1 million.

Call it the "we're too broke to fight" defense.

Lawyers for dozens of insolvent savings and loan associations are trying a new tack in their efforts to defuse suits filed by borrowers, developers and creditors.

The thrifts' lawyers claim that the suits, numbering 700 to 1,000 in Texas alone, should be dismissed as moot because neither the S&Ls nor the extinct Federal Savings and Loan Insurance Corp. has the money to pay judgments.

Though the argument may have a common-sense ring to it, even the S&L lawyers concede there's little precedent to back their position.

Still, one federal appeals court has signaled it's willing to entertain the notion, and the lawyers have renewed their arguments in Texas and eight other states where the defense is permitted under state law.

The dismissal of the pending suits could go a long way toward clearing court dockets in Texas and reducing the FSLIC's massive legal bills, which topped $73 million last year.

The S&L lawyers were encouraged last month by an appellate-court ruling in two cases brought against defunct Sunbelt Savings & Loan Association of Dallas by the developers of the Valley Ranch, best known as the training center for the Dallas Cowboys football team. Sunbelt foreclosed on the ranch.

Sunbelt and the FSLIC argued to the Fifth U.S. Circuit Court of Appeals "that there will never be any assets with which to satisfy a judgment against Sunbelt Savings nor any means to collect from any other party, including FSLIC."

"If true," the court wrote, "this contention would justify dismissal of these actions on prudential grounds." But the court said it lacked enough financial information about Sunbelt and the FSLIC and sent the cases back to federal district court in Dallas.

Charles Haworth, a lawyer for Sunbelt, says he plans to file a brief this week urging the district judge to dismiss the suits, because Sunbelt's liabilities exceeded its assets by about $2 billion when federal regulators closed it in August 1988.

"This institution is just brain dead," says Mr. Haworth, a partner in the Dallas office of Andrews & Kurth, a Houston law firm.

But a lawyer for Triland Investment Group, the developer of Valley Ranch, dismisses such arguments as a "defense du jour." Attorney Richard Jackson of Dallas says a judgment for Triland could be satisfied in ways other than a monetary award, including the reversal of Sunbelt's foreclosure on Valley Ranch.

"We're asking the court for a number of things he can grant in addition to the thrill of victory," he says. "We'd take the Valley Ranch free and clear as a booby prize."

Kenneth J. Thygerson, who was named president of this thrift holding company in August, resigned, citing personal reasons. Mr. Thygerson said he had planned to travel between the job in Denver and his San Diego home, but has found the commute too difficult to continue. A new president wasn't named.

SOUTH AFRICA FREED the ANC's Sisulu and seven other political prisoners.

Thousands of supporters, many brandishing flags of the outlawed African National Congress, gave the anti-apartheid activists a tumultuous reception upon their return to black townships across the country. Most of those freed had spent at least 25 years in prison. The 77-year-old Sisulu, sentenced to life in 1964 along with black nationalist Nelson Mandela for plotting to overthrow the government, said equality for blacks in South Africa was in reach. The releases, announced last week by President de Klerk, were viewed as Pretoria's tacit legalization of the ANC.

Mandela, considered the most prominent leader of the ANC, remains in prison. But his release within the next few months is widely expected.

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The Soviet Union reported that thousands of tons of goods needed to ease widespread shortages across the nation were piled up at ports and rail depots, and food shipments were rotting because of a lack of people and equipment to move the cargo. Strikes and mismanagement were cited, and Premier Ryzhkov warned of "tough measures."

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Bush indicated there might be "room for flexibility" in a bill to allow federal funding of abortions for poor women who are vicitims of rape and incest. He reiterated his opposition to such funding, but expressed hope of a compromise. The president, at a news conference Friday, also renewed a call for the ouster of Panama's Noriega.

The White House said minors haven't any right to abortion without the consent of their parents. The administration's policy was stated in a friend-of-the-court brief urging the Supreme Court to give states more leeway to restrict abortions. Ten of the nation's governors, meanwhile, called on the justices to reject efforts to limit abortions.

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The Justice Department announced that the FBI has been given the authority to seize U.S. fugitives overseas without the permission of foreign governments. Secretary of State Baker emphasized Friday that the new policy wouldn't be invoked by the Bush administration without full consideration of foreign-policy implications.

--- NASA pronounced the space shuttle Atlantis ready for launch tomorrow following a five-day postponement of the flight because of a faulty engine computer. The device was replaced. The spacecraft's five astronauts are to dispatch the Galileo space probe on an exploration mission to Jupiter.

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South Korea's President Roh traveled to the U.S. for a five-day visit that is expected to focus on ties between Washington and Seoul. Roh, who is facing calls for the reduction of U.S. military forces in South Korea, is to meet with Bush tomorrow and is to address a joint session of Congress on Wednesday.

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China's Communist leadership voted to purge the party of "hostile and anti-party elements" and wealthy private businessmen, whom they called exploiters. The decision, reported by the official Xinhua News Agency, indicated that the crackdown prompted by student-led pro-democracy protests in June is intensifying.

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Hundreds of East Germans flocked to Bonn's Embassy in Warsaw, bringing to more than 1,200 the number of emigres expected to flee to the West beginning today. More than 2,100 others escaped to West Germany through Hungary over the Weekend. In Leipzig, activists vowed to continue street protests to demand internal change.

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Zaire's President Mobutu met in southern France with Angolan rebel leader Savimbi and a senior U.S. envoy in a bid to revive an accord to end Angola's civil war. Details of the talks, described by a Zairean official as "very delicate," weren't disclosed.

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PLO leader Arafat insisted on guarantees that any elections in the Israeli-occupied territories would be impartial. He made his remarks to a PLO gathering in Baghdad. In the occupied lands, underground leaders of the Arab uprising rejected a U.S. plan to arrange Israeli-Palestinian talks as Shamir opposed holding such discussions in Cairo.

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Lebanese Christian lawmakers presented to Arab mediators at talks in Saudi Arabia proposals for a new timetable for the withdrawal of Syria's forces from Lebanon. A plan currently under study gives Damascus two years to pull back to eastern Lebanon, starting from the time Beirut's legislature increases political power for Moslems.

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Hurricane Jerry threatened to combine with the highest tides of the year to swamp the Texas-Louisiana coast. Thousands of residents of low-lying areas were ordered to evacuate as the storm headed north in the Gulf of Mexico with 80 mph winds.

A group of Arby's franchisees said they formed an association to oppose Miami Beach financier Victor Posner's control of the restaurant chain.

The decision is the latest move in an escalating battle between the franchisees and Mr. Posner that began in August. At the time, a group called R.B. Partners Ltd., consisting of eight of Arby's largest franchisees, offered more than $200 million to buy Arby's Inc., which is part of DWG Corp. DWG is a holding company controlled by Mr. Posner. One week later, Leonard H. Roberts, president and chief executive officer of Arby's, was fired in a dispute with Mr. Posner.

Friday, 42 franchisees announced the formation of an association -- called A.P. Association Inc. -- to "preserve the integrity of the Arby's system." The franchisees, owners or operators of 1,000 of the 1,900 franchised Arby's in the U.S., said: "We have concluded that continued control of Arby's by Victor Posner is totally unacceptable to us, because it is extremely likely to cause irreparable damage to the Arby's system. We support all efforts to remove Victor Posner from control of Arby's Inc. and the Arby's system."

The group said it would consider, among other things, withholding royalty payments and initiating a class-action lawsuit seeking court approval for the withholdings.

In Florida, Renee Mottram, a senior vice president at DWG, responded: "We don't think any individual or group should disrupt a winning system or illegally interfere with existing contractual relationships for their own self-serving motives."

September's steep rise in producer prices shows that inflation still persists, and the pessimism over interest rates caused by the new price data contributed to the stock market's plunge Friday.

After falling for three consecutive months, the producer price index for finished goods shot up 0.9% last month, the Labor Department reported Friday, as energy prices jumped after tumbling through the summer.

Although the report, which was released before the stock market opened, didn't trigger the 190.58-point drop in the Dow Jones Industrial Average, analysts said it did play a role in the market's decline. Analysts immediately viewed the price data, the grimmest inflation news in months, as evidence that the Federal Reserve was unlikely to allow interest rates to fall as many investors had hoped.

Further fueling the belief that pressures in the economy were sufficient to keep the Fed from easing credit, the Commerce Department reported Friday that retail sales grew 0.5% in September, to $145.21 billion. That rise came on top of a 0.7% gain in August, and suggested there is still healthy consumer demand in the economy.

"I think the Friday report, combined with the actions of the Fed, weakened the belief that there was going to be an imminent easing of monetary policy," said Robert Dederick, chief economist at Northern Trust Co. in Chicago.

But economists were divided over the extent of the inflation threat signaled by the new numbers.

"The overall 0.9% increase is serious in itself, but what is even worse is that excluding food and energy, the producer price index still increased by 0.7%," said Gordon Richards, an economist at the National Association of Manufacturers.

But Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis, blamed rising energy prices and the annual autumn increase in car prices for most of the September jump. "I would say this is not bad news; this is a blip," he said. "The core rate is not really out of line."

All year, energy prices have skewed the producer price index, which measures changes in the prices producers receive for goods. Inflation unquestionably has fallen back from its torrid pace last winter, when a steep run-up in world oil prices sent the index surging at double-digit annual rates. Energy prices then plummeted through the summer, causing the index to decline for three consecutive months.

Overall, the index has climbed at a 5.1% compound annual rate since the start of the year, the Labor Department said. While far more restrained than the pace at the beginning of the year, that is still a steeper rise than the 4.0% increase for all of 1988.

Moreover, this year's good inflation news may have ended last month, when energy prices zoomed up 6.5% after plunging 7.3% in August. Some analysts expect oil prices to remain relatively stable in the months ahead, leaving the future pace of inflation uncertain.

Analysts had expected that the climb in oil prices last month would lead to a substantial rise in the producer price index, but the 0.9% climb was higher than most anticipated. "I think the resurgence {in inflation} is going to continue for a few months," said John Mueller, chief economist at Bell Mueller Cannon, a Washington economic forecasting firm. He predicted that inflation will moderate next year, saying that credit conditions are fairly tight world-wide.

But Dirk Van Dongen, president of the National Association of Wholesaler-Distributors, said that last month's rise "isn't as bad an omen" as the 0.9% figure suggests. "If you examine the data carefully, the increase is concentrated in energy and motor vehicle prices, rather than being a broad-based advance in the prices of consumer and industrial goods," he explained.

Passenger car prices jumped 3.8% in September, after climbing 0.5% in August and declining in the late spring and summer. Many analysts said the September increase was a one-time event, coming as dealers introduced their 1990 models. Although all the price data were adjusted for normal seasonal fluctuations, car prices rose beyond the customary autumn increase.

Prices for capital equipment rose a hefty 1.1% in September, while prices for home electronic equipment fell 1.1%. Food prices declined 0.6%, after climbing 0.3% in August.

Meanwhile, the retail sales report showed that car sales rose 0.8% in September to $32.82 billion. But at least part of the increase could have come from higher prices, analysts said.

Sales at general merchandise stores rose 1.7% after declining 0.6% in August, while sales of building materials fell 1.8% after rising 1.7%.

Producer prices for intermediate goods grew 0.4% in September, after dropping for three consecutive months. Prices for crude goods, an array of raw materials, jumped 1.1% after declining 1.9% in August and edging up 0.2% in July.

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Here are the Labor Department's producer price indexes (1982=100) for September, before seasonal adjustment, and the percentage changes from September, 1988. @ Finished goods .......................... 113.5 4.5% @ Minus food & energy ..................... 122.2 4.3% @ Intermediate goods ...................... 112.4 3.4% @ Crude goods ............................. 102.0 5.5%

CityFed Financial Corp. said it expects to report a loss of at least $125 million to $150 million for the third quarter.

In the year-earlier period, CityFed had net income of $485,000, but no per-share earnings.

CityFed's president and chief executive officer, John Atherton, said the loss stems from several factors. He said nonperforming assets rose to slightly more than $700 million from $516 million between June and September. Approximately 85% of the total consisted of nonperforming commercial real estate assets. Accordingly, CityFed estimated that it will provide between $85 million and $110 million for credit losses in the third quarter.

CityFed added that significant additional loan-loss provisions may be required by federal regulators as part of the current annual examination of City Federal Savings Bank, CityFed's primary subsidiary, based in Somerset, N.J. City Federal operates 105 banking offices in New Jersey and Florida.

Mr. Atherton said CityFed will also mark its portfolio of high-yield corporate bonds to market as a result of federal legislation requiring that savings institutions divest themselves of such bonds. That action, CityFed said, will result in a charge against third-quarter results of approximately $30 million.

CityFed also said it expects to shed its remaining mortgage loan origination operations outside its principal markets in New Jersey and Florida and, as a result, is taking a charge for discontinued operations.

All these actions, Mr. Atherton said, will result in a loss of $125 million to $150 million for the third quarter. He added, however: "Depending on the resolution of certain accounting issues relating to mortgages servicing and the outcome of the annual examination of City Federal currently in progress with respect to the appropriate level of loan loss reserves, the total loss for the quarter could significantly exceed this range."

CenTrust Savings Bank said federal thrift regulators ordered it to suspend dividend payments on its two classes of preferred stock, indicating that regulators' concerns about the troubled institution have heightened.

In a statement, Miami-based CenTrust said the regulators cited the thrift's operating losses and "apparent losses" in its junk-bond portfolio in ordering the suspension of the dividends. Regulators also ordered CenTrust to stop buying back the preferred stock.

David L. Paul, chairman and chief executive officer, criticized the federal Office of Thrift Supervision, which issued the directive, saying it was "inappropriate" and based on "insufficient" reasons. He said the thrift will try to get regulators to reverse the decision.

The suspension of a preferred stock dividend is a serious step that signals that regulators have deep concerns about an institution's health.

In March, regulators labeled CenTrust a "troubled institution," largely because of its big junk-bond holdings and its operating losses. In the same month, the Office of Thrift Supervision ordered the institution to stop paying common stock dividends until its operations were on track.

For the nine months ended June 30, CenTrust had a net loss of $21.3 million, compared with year-earlier net income of $52.8 million. CenTrust, which is Florida's largest thrift, holds one of the largest junk-bond portfolios of any thrift in the nation. Since April, it has pared its high-yield bond holdings to about $890 million from $1.35 billion. Mr. Paul said only about $150 million of the current holdings are tradeable securities registered with the Securities and Exchange Commission. The remainder, he said, are commercial loan participations, or private placements, that aren't filed with the SEC and don't have a ready market.

CenTrust and regulators have been in a dispute over market valuations for the junk bonds. The Office of Thrift Supervision has been hounding CenTrust to provide current market values for its holdings, but CenTrust has said it can't easily obtain such values because of the relative illiquidity of the bonds and lack of a ready market.

Regulators have become increasingly antsy about CenTrust's and other thrifts' junk-bond holdings in light of the recent federal thrift bailout legislation and the recent deep decline in the junk-bond market. The legislation requires thrifts to divest themselves of junk bonds in the new, somber regulatory climate.

In American Stock Exchange composite trading Friday, CenTrust common shares closed at $3, down 12.5 cents.

In a statement Friday, Mr. Paul challenged the regulators' decision, saying the thrift's operating losses and "apparent" junk-bond losses "have been substantially offset by gains in other activities of the bank." He also said substantial reserves have been set aside for possible losses from the junk bonds. In the third quarter, for instance, CenTrust added $22.5 million to its general reserves.

Mr. Paul said the regulators should instead move ahead with approving CenTrust's request to sell 63 of its 71 branches to Great Western Bank, a unit of Great Western Financial Corp. based in Beverly Hills, Calif.

The branch sale is the centerpiece of CenTrust's strategy to transform itself into a traditional S&L from a high-flying institution that relied heavily on securities trading for profits, according to Mr. Paul. Most analysts and thrift executives had expected a decision on the proposed transaction, which was announced in July, long before now. Many interpret the delay as an indication that regulators are skeptical about the proposal. Branches and deposits can be sold at a premium in the event federal regulators take over an institution.

CenTrust, however, touts the branch sale, saying it would bring in $150 million and reduce the thrift's assets to $6.7 billion from $9 billion. It said the sale would give it positive tangible capital of $82 million, or about 1.2% of assets, from a negative $33 million as of Sept. 30, thus bringing CenTrust close to regulatory standards.

CenTrust said the branch sale would also reduce the company's large amount of good will by about $180 million. Critics, however, say the branch sale will make CenTrust more dependent than ever on brokered deposits and junk bonds.

Mr. Paul counters that he intends to further pare the size of CenTrust by not renewing more than $1 billion of brokered certificates of deposit when they come due. The thrift is also working to unload its junk-bond portfolio by continuing to sell off the bonds, and it plans to eventually place some of them in a separate affiliate, as required under the new thrift law.

On a recent Saturday night, in the midst of West Germany's most popular prime-time show, a contestant bet the host that she could name any of 100 different cheeses after just one nibble, while blindfolded.

The woman won the bet. But perhaps even more remarkable, the three-hour-show, "Wetten Dass" (Make a Bet), regularly wins the top slot in the country's TV ratings, sometimes drawing as many as 50% of West German households.

As the 1992 economic integration approaches, Europe's cultural curators have taken to the ramparts against American "cultural imperialism," threatening to impose quotas against such pop invaders as "Dallas," "Miami Vice" and "L.A. Law." But much of what the Europeans want to protect seems every bit as cheesy as what they are trying to keep out.

The most militant opposition to American TV imports has come from French television and movie producers, who have demanded quotas ensuring that a full 60% of Europe's TV shows be produced in Europe. So far, the French have failed to win enough broad-based support to prevail.

A glance through the television listings and a few twists of the European television dial suggest one reason why. While there are some popular action and drama series, few boast the high culture and classy production values one might expect. More European air time is filled with low-budget game shows, variety hours, movies and talk shows, many of which are authorized knock-offs of their American counterparts.

One of France's most popular Saturday night programs features semi-celebrities seeking out their grammar-school classmates for on-air reunions. A Flemish game show has as its host a Belgian pretending to be Italian. One of Italy's favorite shows, "Fantastico," a tepid variety show, is so popular that viewers clamored to buy a chocolate product, "Cacao Fantastico," whose praises were sung each week by dancing showgirls -- even though the product didn't exist.

Topping the cheese stunt, on another typical evening of fun on "Wetten Dass," a contestant won a bet with the show's host, Thomas Gottschalk, that he could identify 300 German dialects over the telephone. A celebrity guest, U.S. Ambassador to West Germany Richard Burt, also won a bet that someone could pile up $150 worth of quarters on a slanted coin. Mr. Burt nonetheless paid the penalty as if he had lost, agreeing to spend a day with West German Foreign Minister Hans-Dietrich Genscher frying and selling their combined weight in potato pancakes.

If this seems like pretty weak stuff around which to raise the protectionist barriers, it may be because these shows need all the protection they can get. European programs usually target only their own local audience, and often only a small portion of that. Mega-hits in Germany or Italy rarely make it even to France or Great Britain, and almost never show up on U.S. screens.

Attempts to produce "pan-European" programs have generally resulted in disappointment. One annual co-production, the three-hour-long "Eurovision Song Contest," featuring soft-rock songs from each of 20 European countries, has been described as the world's most boring TV show. Another, "Jeux Sans Frontieres," where villagers from assorted European countries make fools of themselves performing pointless tasks, is a hit in France. A U.S.-made imitation under the title "Almost Anything Goes" flopped fast.

For the most part, what's made here stays here, and for good reason. The cream of the British crop, the literary dramas that are shown on U.S. public television as "Masterpiece Theater," make up a relatively small part of British air time. Most British programming is more of an acquired taste. There is, for instance, "One Man and His Dog," a herding contest among sheep dogs. Also riveting to the British are hours of dart-throwing championships, even more hours of lawn bowling contests and still more hours of snooker marathons.

European drama has had better, though still mixed, fortunes. The most popular such shows focus on narrow national concerns. A French knock-off of "Dallas," called "Chateauvallon" and set in a French vineyard, had a good run in France, which ended after the female lead was injured in a real-life auto accident. "Schwarzwaldklinik," (Black Forest Clinic), a kind of German "St. Elsewhere" set in a health spa, is popular in Germany, and has spread into France.

Italy's most popular series is a drama called "La Piovra," or "The Octopus," which chronicles the fight of an idealistic young investigator in Palermo against the Mafia. It was front-page news in Italy earlier this year when the fictional inspector was gunned down in the series. Spain's most popular mini-series this year was "Juncal," the story of an aging bullfighter.

"The trend is pretty well established now that local programs are the most popular, with American programs second," says Brian Wenham, a former director of programs for the British Broadcasting Corp. "Given a choice, everybody will watch a home-produced show."

But frequently there isn't much choice. Thus, Europe has begun the recent crusade to produce more worthy shows of its own, programs with broader appeal. "We've basically got to start from scratch, to train writers and producers to make shows that other people will want to see," concedes Colin Young, head of Britain's National Film Theatre School.

While some in the U.S. contend that advertising is the bane of television, here many believe that its absence is to blame for the European TV industry's sluggish development. Until recently, national governments in Europe controlled most of the air time and allowed little or no advertising. Since production costs were guaranteed, it didn't matter that a program couldn't be sold abroad or put into syndication, as most American programs are. But not much money was spent on the shows, either, a situation that encouraged cheap-to-make talk and game shows, while discouraging expensive-to-produce dramas.

Now, however, commercial channels are coming to most European countries, and at the same time, satellite and cable technology is spreading rapidly. Just last week, Greece authorized two commercial channels for the first time; Spain earlier began to allow commercial television alongside its state channels. The result is a new and huge appetite for programming.

But perhaps to the consternation of those calling for quotas, most of this void is likely to be filled with the cheapest and most plentiful programming now available -- reruns -- usually of shows made in the U.S.

Sky Channel, a British-based venture of Australian-American press tycoon Rupert Murdoch, offers what must be a baffling cultural mix to most of its audience. The financially struggling station offers programs obviously made available cheaply from its boss's other ventures. In a Madrid hotel room recently, a viewer caught the end of a badly acted series about a fishing boat on Australia's Great Barrier Reef, only to be urged by the British announcer to "stay tuned for the further adventures of Skippy the Kangaroo."

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Lisa Grishaw-Mueller in Bonn, Laura Colby in Milan, Tim Carrington in London and Carlta Vitzhum in Madrid contributed to this article.

British Aerospace PLC and France's Thomson-CSF S.A. said they are nearing an agreement to merge their guided-missile divisions, greatly expanding collaboration between the two defense contractors.

The 50-50 joint venture, which may be dubbed Eurodynamics, would have combined annual sales of at least #1.4 billion ($2.17 billion) and would be among the world's largest missile makers. After two years of talks, plans for the venture are sufficiently advanced for the companies to seek French and British government clearance. The companies hope for a final agreement by year-end.

The venture would strengthen the rapidly growing ties between the two companies, and help make them a leading force in European defense contracting. In recent months, a string of cross-border mergers and joint ventures have reshaped the once-balkanized world of European arms manufacture.

Already, British Aerospace and French government-controlled Thomson-CSF collaborate on a British missile contract and on an air-traffic control radar system. Just last week they announced they may make a joint bid to buy Ferranti International Signal PLC, a smaller British defense contractor rocked by alleged accounting fraud at a U.S. unit.

The sudden romance of British Aerospace and Thomson-CSF -- traditionally bitter competitors for Middle East and Third World weapons contracts -- is stirring controversy in Western Europe's defense industry. Most threatened by closer British Aerospace-Thomson ties would be their respective national rivals, including Matra S.A. in France and Britain's General Electric Co. PLC. But neither Matra nor GEC -- unrelated to Stamford, Conn.-based General Electric Co. -- are sitting quietly by as their competitors join forces.

Yesterday, a source close to GEC confirmed that his company may join the Ferranti fight, as part of a possible consortium that would bid against British Aerospace and Thomson-CSF. Companies with which GEC has had talks about a possible joint Ferranti bid include Matra, Britain's Dowty Group PLC, West Germany's Daimler-Benz AG, and France's Dassault group.

But it may be weeks before GEC and its potential partners decide whether to bid, the source indicated. GEC plans first to study Ferranti's financial accounts, which auditors recently said included #215 million in fictitious contracts at a U.S. unit, International Signal & Control Group, with which Ferranti merged last year. Also, any GEC bid might be blocked by British antitrust regulators; Ferranti is GEC's main competitor on several key defense-electronics contracts, and its purchase by GEC may heighten British Defense Ministry worries about concentration in the country's defense industry. A consortium bid, however, would diminish GEC's direct role in Ferranti and might consequently appease ministry officials.

A British Aerospace spokeswoman appeared unperturbed by the prospect of a fight with GEC for Ferranti: "Competition is the name of the game," she said.

At least one potential GEC partner, Matra, insists it isn't interested in Ferranti. "We have nothing to say about this affair, which doesn't concern us," a Matra official said Sunday.

The missile venture, the British Aerospace spokeswoman said, is a needed response to the "new environment" in defense contracting. For both Thomson and British Aerospace, earnings in their home markets have come under pressure from increasingly tight-fisted defense ministries; and Middle East sales, a traditional mainstay for both companies' exports, have been hurt by five years of weak oil prices.

The venture's importance for Thomson is great. Thomson feels the future of its defense business depends on building cooperation with other Europeans. The European defense industry is consolidating; for instance, West Germany's Siemens AG recently joined GEC in a takeover of Britain's Plessey Co., and Daimler-Benz agreed to buy Messerschmitt-Boelkow Blohm G.m.b.H.

In missiles, Thomson is already overshadowed by British Aerospace and by its home rival, France's Aerospatiale S.A.; to better compete, Thomson officials say, they need a partnership. To justify 50-50 ownership of the planned venture, Thomson would make a cash payment to British Aerospace.

Annual revenue of British Aerospace's missile business is about #950 million, a Thomson spokesman said. British Aerospace's chief missile products include its 17-year-old family of Rapier surface-to-air missiles. Thomson missile products, with about half British Aerospace's annual revenue, include the Crotale surface-to-air missile family.

Interprovincial Pipe Line Co. said it will delay a proposed two-step, 830 million Canadian-dollar (US$705.6 million) expansion of its system because Canada's output of crude oil is shrinking.

Interprovincial, Canada's biggest oil pipeline operator and a major transporter of crude to the U.S., said revised industry forecasts indicate that Canadian oil output will total about 1.64 million barrels a day by 1991, 8% lower than a previous estimate. Canadian crude production averaged about 1.69 million barrels a day during 1989's first half, about 1% below the 1988 level.

"The capability of existing fields to deliver oil is dropping," and oil exploration activity is also down dramatically, as many producers shift their emphasis to natural gas, said Ronald Watkins, vice president for government and industry relations with Interprovincial's parent, Interhome Energy Inc. Mr. Watkins said volume on Interprovincial's system is down about 2% since January and is expected to fall further, making expansion unnecessary until perhaps the mid-1990s.

"There has been a swing of the pendulum back to the gas side," he said.

Many of Canada's oil and gas producers say the outlook for natural gas is better than it is for oil, and have shifted their exploration and development budgets accordingly. The number of active drilling rigs in Canada is down 30% from a year ago, and the number of completed oil wells is "down more than that, due to the increasing focus on gas exploration," said Robert Feick, manager of crude oil with Calgary's Independent Petroleum Association of Canada, an industry group.

Mr. Watkins said the main reason for the production decline is shrinking output of light crude from mature, conventional fields in western Canada. Interprovincial transports about 75% of all crude produced in western Canada, and almost 60% of Interprovincial's total volume consists of light crude.

Nearly all of the crude oil that Canada exports to the U.S. is transported on Interprovincial's system, whose main line runs from Edmonton to major U.S. and Canadian cities in the Great Lakes region, including Chicago, Buffalo, Toronto and Montreal.

Canada's current oil exports to the U.S. total about 600,000 barrels a day, or about 9.1% of net U.S. crude imports, said John Lichtblau, president of the New York-based Petroleum Industry Research Foundation. That ranks Canada as the fourth-largest source of imported crude, behind Saudi Arabia, Nigeria and Mexico.

Mr. Lichtblau said Canada's declining crude output, combined with the fast-shrinking output of U.S. crude, will help intensify U.S. reliance on oil from overseas, particularly the Middle East. "It's very much a growing concern. But when something is inevitable, you learn to live with it," he said.

Mr. Lichtblau stressed that the delay of Interprovincial's proposed expansion won't by itself increase U.S. dependence on offshore crude, however, since Canadian imports are limited in any case by Canada's falling output.

Under terms of its proposed two-step expansion, which would have required regulatory approval, Interprovincial intended to add 200,000 barrels a day of additional capacity to its system, beginning with a modest expansion by 1991. The system currently has a capacity of 1.55 million barrels a day.

Inland Steel Industries Inc. expects to report that third-quarter earnings dropped more than 50% from the previous quarter as a result of reduced sales volume and increased costs.

In the second quarter, the steelmaker had net income of $45.3 million or $1.25 a share, including a pretax charge of $17 million related to the settlement of a suit, on sales of $1.11 billion.

The company said normal seasonal softness and lost orders caused by prolonged labor talks reduced shipments by 200,000 tons in the latest quarter, compared with the second quarter.

At the same time, the integrated-steel business was hurt by continued increases in materials costs and repair and maintenance expenses, as well as higher labor costs under its new contract. The service-center business was hurt by reduced margins and start-up costs associated with its Joseph T. Ryerson & Son unit.

The company said it is beginning to see some shipping-rate improvements in both the intergrated-steel and steel-service-center segments, which should result in improved results for the fourth quarter.

Inland said its third-quarter results will be announced later this week. In the year-earlier third quarter, when the industry was in the midst of a boom, the company had net of $61 million, or $1.70 a share, on sales of $1.02 billion.

Predicting the financial results of computer firms has been a tough job lately.

Take Microsoft Corp., the largest maker of personal computer software and generally considered an industry bellwether. In July, the company stunned Wall Street with the prediction that growth in the personal computer business overall would be only 10% in 1990, a modest increase when compared with the sizzling expansion of years past.

Investors -- taking this as a sign that a broad industry slump was in the offing -- reacted by selling the company's stock, which lost $3.25 that day to close at $52 in national over-the-counter trading.

But that was all of three months ago.

Last week, Microsoft said it expects revenue for its first quarter ended Sept. 30 to increase 34%. The announcement caused the company's stock to surge $6.50 to close at $75.50 a share.

Microsoft's surprising strength is one example of the difficulty facing investors looking for reassurances about the financial health of the computer firms. "It's hard to know what to expect at this point," said Peter Rogers, an analyst at Robertson Stephens & Co. "The industry defies characterization."

To illustrate, Mr. Rogers said that of the 14 computer-related firms he follows, half will report for their most recent quarter earnings below last year's results, and half above those results.

Among those companies expected to have a down quarter are Hewlett-Packard Co., Amdahl Corp. and Sun Microsystems Inc., generally solid performers in the past. International Business Machines Corp. also is expected to report disappointing results. Apple Computer Inc., meanwhile, is expected to show improved earnings for the period ended Sept. 30.

Another contradictory message comes from Businessland Inc., a computer retailer. In July, the company reported that booming sales of new personal computers from Apple and IBM had resulted in net income more than doubling for its fourth quarter ended June 30 to $7.4 million, or 23 cents a share.

This month, however, Businessland warned investors that results for its first quarter ended Sept. 30 hadn't met expectations. The company said it expects earnings of 14 to 17 cents a share, down from 25 cents a share in the year-earlier period.

While the earnings picture confuses, observers say the major forces expected to shape the industry in the coming year are clearer.

Companies will continue to war over standards. In computer publishing, a battle over typefaces is hurting Adobe Systems Inc., which sells software that controls the image produced by printers and displays. Until recently, Adobe had a lock on the market for image software, but last month Apple, Adobe's biggest customer, and Microsoft rebelled. Now the two firms are collaborating on an alternative to Adobe's approach, and analysts say they are likely to carry IBM, the biggest seller of personal computers, along with them.

The short-term outlook for Adobe's business, however, appears strong. The company is beginning to ship a new software program that's being heralded as a boon for owners of low-end printers sold by Apple. The program is aimed at improving the quality of printed material. John Warnock, Adobe's chief executive officer, said the Mountain View, Calif., company has been receiving 1,000 calls a day about the product since it was demonstrated at a computer publishing conference several weeks ago.

Meanwhile, competition between various operating systems, which control the basic functions of a computer, spells trouble for software firms generally. "It creates uncertainty and usually slows down sales," said Russ Crabs, an analyst at Soundview Financial Group.

Mr. Crabs said this probably is behind the expected weak performance of Aldus Corp., maker of a widely used computer publishing program. He expects Aldus to report earnings of 21 cents a share on revenues of $19.5 million for its third quarter, compared with earnings of 30 cents a share on revenue of 20.4 million in the year-earlier period. Aldus officials couldn't be reached for comment.

On the other hand, the battle of the bus is expected to grow increasingly irrelevant. A bus is the data highway within a computer. IBM is backing one type of bus called microchannel, while the nine other leading computer makers, including H-P and Compaq Computer Corp., have chosen another method.

"Users don't care about the bus," said Daniel Benton, an analyst at Goldman, Sachs & Co. He said Apple's family of Macintosh computers, for instance, uses four different buses "and no one seems to mind."

The gap between winners and laggards will grow. In personal computers, Apple, Compaq and IBM are expected to tighten their hold on their business. At the same time, second-tier firms will continue to lose ground.

Some lagging competitors even may leave the personal computer business altogether. Wyse Technology, for instance, is considered a candidate to sell its troubled operation. "Wyse has done well establishing a distribution business, but they haven't delivered products that sell," said Kimball Brown, an analyst at Prudential-Bache Securities. Mr. Brown estimates Wyse, whose terminals business is strong, will report a loss of 12 cents a share for its quarter ended Sept. 30.

Personal-computer makers will continue to eat away at the business of more traditional computer firms. Ever-more powerful desk-top computers, designed with one or more microprocessors as their "brains," are expected to increasingly take on functions carried out by more expensive minicomputers and mainframes.

"The guys that make traditional hardware are really being obsoleted by microprocessor-based machines," said Mr. Benton.

As a result of this trend, longtime powerhouses H-P, IBM and Digital Equipment Corp. are scrambling to counterattack with microprocessor-based systems of their own. But they will have to act quickly. Mr. Benton expects Compaq to unveil a family of high-end personal computers later this year that are powerful enough to serve as the hub for communications within large networks of desk-top machines.

A raft of new computer companies also has targeted this "server" market.

Population Drain Ends

For Midwestern States

IOWA IS MAKING a comeback. So are Indiana, Ohio and Michigan. The population of all four states is on the upswing, according to new Census Bureau estimates, following declines throughout the early 1980s.

The gains, to be sure, are rather small. Iowa, for instance, saw its population grow by 11,000 people, or 0.4%, between 1987 and 1988, the Census Bureau says. Still, even that modest increase is good news for a state that hadn't grown at all since 1981.

Between 1987 and 1988, North Dakota was the only state in the Midwest to lose population, a loss of 4,000 people. Six of the 12 midwestern states have been growing steadily since 1980 -- Illinois, Kansas, Minnesota, Missouri, South Dakota and Wisconsin.

The Northeast has been holding its own in the population race. Seven of nine states have grown each year since 1980, including New York, which lost 4% of its population during the 1970s. And although Pennsylvania and Massachusetts suffered slight declines earlier in the decade, they are growing again.

At the same time, several states in the South and West have had their own population turnaround. Seven states that grew in the early 1980s are now losing population -- West Virginia, Mississippi, Louisiana, Oklahoma, Montana, Wyoming and Alaska.

Overall, though, the South and West still outpace the Northeast and Midwest, and fast-growing states like Florida and California ensure that the pattern will continue. But the growth gap between the Sun Belt and other regions has clearly started narrowing.

More Elderly Maintain

Their Independence

THANKS TO modern medicine, more couples are growing old together. And even after losing a spouse, more of the elderly are staying independent. A new Census Bureau study of the noninstitutionalized population shows that 64% of people aged 65 to 74 were living with a spouse in 1988, up from 59% in 1970.

This doesn't mean they're less likely to live alone, however. That share has remained at about 24% since 1970. What has changed is that more of the young elderly are living with spouses rather than with other relatives, such as children. In 1988, 10% of those aged 65 to 74 lived with relatives other than spouses, down from 15% in 1970.

As people get even older, many become widowed. But even among those aged 75 and older, the share living with a spouse rose slightly, to 40% in 1988 from 38% in 1970.

Like their younger counterparts, the older elderly are less likely to live with other relatives. Only 17% of those aged 75 and older lived with relatives other than spouses in 1988, down from 26% in 1970.

The likelihood of living alone beyond the age of 75 has increased to 40% from 32%. More people are remaining independent longer presumably because they are better off physically and financially.

Careers Count Most

For the Well-to-Do

MANY AFFLUENT people place personal success and money above family.

At least that's what a survey by Ernst & Young and Yankelovich, Clancy, Shulman indicates. Two-thirds of respondents said they strongly felt the need to be successful in their jobs, while fewer than half said they strongly felt the need to spend more time with their families. Being successful in careers and spending the money they make are top priorities for this group.

Unlike most studies of the affluent market, this survey excluded the super-rich. Average household income for the sample was $194,000, and average net assets were reported as $775,000.

The goal was to learn about one of today's fastest-growing income groups, the upper-middle class. Although they represent only 2% of the population, they control nearly one-third of discretionary income.

Across the board, these consumers value quality, buy what they like rather than just what they need, and appreciate products that are distinctive.

Despite their considerable incomes and assets, 40% of the respondents in the study don't feel financially secure, and one-fourth don't feel that they have made it. Twenty percent don't even feel they are financially well off.

Many of the affluent aren't comfortable with themselves, either. About 40% don't feel they're more able than others. While twothirds feel some guilt about being affluent, only 25% give $2,500 or more to charity each year.

Thirty-five percent attend religious services regularly; at the same time, 60% feel that in life one sometimes has to compromise one's principles.

Odds and Ends

THE NUMBER of women and minorities who hold jobs in top management in the nation's largest banks has more than doubled since 1978. The American Bankers Association says that women make up 47% of officials and managers in the top 50 banks, up from 33% in 1978. The share of minorities in those positions has risen to 16% from 12%. . . . Per-capita personal income in the U.S. grew faster than inflation last year, according to the Bureau of Economic Analysis. The amount of income divvied up for each man, woman and child was $16,489 in 1988, up 6.6% from $15,472 in 1987. Per capita personal income ranged from $11,116 in Mississippi to $23,059 in Connecticut. . . . There are 13.1 million students in college this fall, up 2% from 1988, the National Center for Education Statistics estimates. About 54% are women, and 44% are part-time students.

This small Dallas suburb's got trouble. Trouble with a capital T and that rhymes with P and that stands for pool.

More than 30 years ago, Prof. Harold Hill, the con man in Meredith Willson's "The Music Man," warned the citizens of River City, Iowa, against the game. Now kindred spirits on Addison's town council have barred the town's fanciest hotel, the Grand Kempinski, from installing three free pool tables in its new lounge.

Mayor Lynn Spruill and two members of the council said they were worried about setting a precedent that would permit pool halls along Addison's main street. And the mayor, in an admonition that bears a rhythmic resemblance to Prof. Hill's, warned that "alcohol leads to betting, which leads to fights."

The council's action is yet another blow to a sport that its fans claim has been maligned unjustly for years. "Obviously they're not in touch with what's going on," says Tom Manske, vice president of the National Pocket Billiards Association. Pool is hot in New York and Chicago, he insists, where "upscale, suit-and-tie places" are adding tables. With today's tougher drunk driving laws, he adds, "people don't want to just sit around and drink."

Besides, rowdy behavior seems unlikely at the Grand Kempinski, where rooms average $200 a night and the cheap mixed drinks go for $3.50 a pop. At the lounge, manager Elizabeth Dyer won't admit patrons in jeans, T-shirts or tennis shoes.

But a majority of the Addison council didn't buy those arguments. Introducing pool, argued Councilwoman Riley Reinker, would be "dangerous. It would open a can of worms."

Addison is no stranger to cans of worms, either. After its previous mayor committed suicide last year, an investigation disclosed that town officials regularly voted on their own projects, gave special favors to developer friends and dipped into the town's coffers for trips and retreats.

The revelations embarrassed town officials, although they argued that the problems weren't as severe as the media suggested. Now comes the pool flap.

"I think there's some people worried about something pretty ridiculous," Councilman John Nolan says. "I thought this was all taken care of in `The Music Man.'"

The only thing Robert Goldberg could praise about CBS's new show "Island Son" (Leisure & Arts, Sept. 25) was the local color; unfortunately neither he nor the producers of the show have done their homework. For instance: "Haole" (white) is not the ultimate insult; "Mainland haole" is. Richard Chamberlain dresses as a "Mainland haole," tucking in a Hawaiian shirt and rolling up its long sleeves. And the local expression for brother is "brah," not "bruddah." And even if a nurse would wear flowers in her hair while on duty, if she were engaged she would know to wear them behind her left, not right, ear. Sorry, the show does not even have the one redeeming quality of genuine local color.

Anita Davis

Austin, Texas

Of all the ethnic tensions in America, which is the most troublesome right now? A good bet would be the tension between blacks and Jews in New York City. Or so it must seem to Jackie Mason, the veteran Jewish comedian appearing in a new ABC sitcom airing on Tuesday nights (9:30-10 p.m. EDT). Not only is Mr. Mason the star of "Chicken Soup," he's also the inheritor of a comedic tradition dating back to "Duck Soup," and he's currently a man in hot water.

Here, in neutral language, is the gist of Mr. Mason's remarks, quoted first in the Village Voice while he was a paid spokesman for the Rudolph Giuliani mayoral campaign, and then in Newsweek after he and the campaign parted company. Mr. Mason said that many Jewish voters feel guilty toward blacks, so they support black candidates uncritically. He said that many black voters feel bitter about racial discrimination, so they, too, support black candidates uncritically. He said that Jews have contributed more to black causes over the years than vice versa.

Of course, Mr. Mason did not use neutral language. As a practitioner of ethnic humor from the old days on the Borscht Belt, live television and the nightclub circuit, Mr. Mason instinctively reached for the vernacular. He said Jews were "sick with complexes"; and he called David Dinkins, Mr. Giuliani's black opponent, "a fancy shvartze with a mustache."

If Mr. Mason had used less derogatory language to articulate his amateur analysis of the voting behavior of his fellow New Yorkers, would the water be quite so hot? It probably would, because few or none of the people upset by Mr. Mason's remarks have bothered to distinguish between the substance of his comments and the fact that he used insulting language. In addition, some of Mr. Mason's critics have implied that his type of ethnic humor is itself a form of racism.

For example, the New York state counsel for the NAACP said that Mr. Mason is "like a dinosaur. People are fast leaving the place where he is stuck."

These critics fail to distinguish between the type of ethnic humor that aims at disparaging another group, such as "Polish jokes"; and the type that is double-edged, aiming inward as well as outward. The latter typically is the humor of the underdog, and it was perfected by both blacks and Jews on the minstrel and vaudeville stage as a means of mocking their white and gentile audiences along with themselves.

In the hands of a zealot like Lenny Bruce, this double-edged blade could cut both the self and the audience to ribbons. But wielded by a pro like Jackie Mason, it is a constructive form of mischief. Why constructive? Because despite all the media prattle about comedy and politics not mixing, they are similar in one respect: Both can serve as mechanisms for easing tensions and facilitating the co-existence of groups in conflict. That's why it's dangerous to have well-intentioned thought police, on college campuses and elsewhere, taboo all critical mention of group differences.

As Elizabeth Kristol wrote in the New York Times just before the Mason donnybrook, "Perhaps intolerance would not boil over with such intensity if honest differences were allowed to simmer." The question is, if group conflicts still exist (as undeniably they do), and if Mr. Mason's type of ethnic humor is passe, then what other means do we have for letting off steam?

Don't say the TV sitcom, because that happens to be a genre that, in its desperate need to attract everybody and offend nobody, resembles politics more than it does comedy. It is true that the best sitcoms do allow group differences to simmer: yuppies vs. blue-collar Bostonians in "Cheers"; children vs. adults in "The Cosby Show." But these are not the differences that make headlines.

In "Chicken Soup," Mr. Mason plays Jackie, a Jewish bachelor courting Maddie (Lynn Redgrave), an Irish widow and mother of three, against the wishes of his mother (Rita Karin) and her brother Michael (Brandon Maggart). It's worth noting that both disapproving relatives are immigrants. At least, they both speak with strong accents, as do Jackie and Maddie. It couldn't be more obvious that "Chicken Soup" is being made from an old recipe. And a safe one -- imagine if the romance in question were between an Orthodox Jew and a member of the Nation of Islam.

Back in the 1920s, the play and movie versions of "Abie's Irish Rose" made the theme of courtship between the assimilated offspring of Jewish and Irish immigrants so popular that its author, Anne Nichols, lost a plagiarism suit on the grounds that the plot has entered the public domain. And it has remained there, as evidenced by its reappearance in a 1972 CBS sitcom called "Bridget Loves Bernie," whose sole distinction was that it led to the real-life marriage of Meredith Baxter and David Birney.

Clearly, the question with "Chicken Soup" is not whether the pot will boil over, but whether it will simmer at all. So far, the bubbles have been few and far between. Part of the problem is the tendency of all sitcoms, ever since the didactic days of Norman Lear, to preach about social issues. To some extent, this tendency emerges whenever the show tries to enlighten us about ethnic stereotypes by reversing them.

For instance, Michael dislikes Jackie not because he's a shrewd Jewish businessman, but because he quits his well-paying job as a salesman in order to become a social worker. Even more problematic is the incompatibility between sitcom preachiness and Mr. Mason's comic persona. The best moments in the show occur at the beginning and the end (and occasionally in the middle), when Mr. Mason slips into his standup mode and starts meting out that old-fashioned Jewish mischief to other people as well as to himself. But too often, these routines lack spark because this sitcom, like all sitcoms, is timid about confronting Mr. Mason's stock in trade-ethnic differences.

I'm not suggesting that the producers start putting together episodes about topics like the Catholic-Jewish dispute over the Carmelite convent at Auschwitz. That issue, like racial tensions in New York City, will have to cool down, not heat up, before it can simmer. But I am suggesting that they stop requiring Mr. Mason to interrupt his classic shtik with some line about "caring for other people" that would sound shmaltzy on the lips of Miss America. At your age, Jackie, you ought to know that you can't make soup without turning up the flame.

The official White House reaction to a plunge in stock prices has a 60-year history of calm, right up through Friday.

Treasury Secretary Nicholas Brady said in a statement Friday that the stock-market decline "doesn't signal any fundamental change in the condition of the economy."

"The economy," he added, "remains well-balanced and the outlook is for continued moderate growth."

Sound familiar? Here's what Ronald Reagan said after the 1987 crash: "The underlying economy remains sound. There is nothing wrong with the economy . . . all the indices are up."

Heard that before? After the 1929 crash, Herbert Hoover said: "The fundamental business of the country . . . is on a sound and prosperous basis."

James Robinson, 57 years old, was elected president and chief executive officer of this maker of magnetic recording heads for disk drives. He has been president and chief executive officer of Amperex Electronics Corp., a division of North American Philips Corp., itself a subsidiary of N.V. Philips of the Netherlands. Charles J. Lawson Jr., 68, who had been acting chief executive since June 14, will continue as chairman. The former president and chief executive, Eric W. Markrud, resigned in June.

The Senate's decision to approve a bare-bones deficit-reduction bill without a capital-gains tax cut still leaves open the possibility of enacting a gains tax reduction this year.

Late Friday night, the Senate voted 87-7 to approve an estimated $13.5 billion measure that had been stripped of hundreds of provisions that would have widened, rather than narrowed, the federal budget deficit. Lawmakers drastically streamlined the bill to blunt criticism that it was bloated with special-interest tax breaks and spending increases.

"We're putting a deficit-reduction bill back in the category of being a deficit-reduction bill," said Senate Budget Committee Chairman James Sasser (D., Tenn.).

But Senate supporters of the trimmer legislation said that other bills would soon be moving through Congress that could carry some of the measures that had been cast aside, including a capital-gains tax cut. In addition, the companion deficit-reduction bill already passed by the House includes a capital-gains provision. House-Senate negotiations are likely to begin at midweek and last for a while.

"No one can predict exactly what will happen on the House side," said Senate Minority Leader Robert Dole (R., Kan.). But, he added, "I believe Republicans and Democrats will work together to get capital-gains reform this year."

White House Budget Director Richard Darman told reporters yesterday that the administration wouldn't push to keep the capital-gains cut in the final version of the bill. "We don't need this as a way to get capital gains," he said.

House Budget Committee Chairman Leon Panetta (D., Calif.) said in an interview, "If that's the signal that comes from the White House, that will help a great deal."

The Senate's decision was a setback for President Bush and will make approval of a capital-gains tax cut less certain this year. Opponents of the cut are playing hardball. Senate Majority Leader George Mitchell (D., Maine) said he was "confident" that any House-Senate agreement on the deficit-reduction legislation wouldn't include a capital-gains tax cut. And a senior aide to the House Ways and Means Committee, where tax legislation originates, said there aren't any "plans to produce another tax bill that could carry a gains tax cut this year."

One obvious place to attach a capital-gains tax cut, and perhaps other popular items stripped from the deficit-reduction bill, is the legislation to raise the federal borrowing limit. Such legislation must be enacted by the end of the month.

The Senate bill was pared back in an attempt to speed deficit-reduction through Congress. Because the legislation hasn't been completed, President Bush has until midnight tonight to enact across-the-board spending cuts mandated by the Gramm-Rudman deficit-reduction law.

Senators hope that the need to avoid those cuts will pressure the House to agree to the streamlined bill. The House appears reluctant to join the senators. A key is whether House Republicans are willing to acquiesce to their Senate colleagues' decision to drop many pet provisions.

"Although I am encouraged by the Senate action," said Chairman Dan Rostenkowski (D., Ill.) of the House Ways and Means Committee, "it is uncertain whether a clean bill can be achieved in the upcoming conference with the Senate."

Another big question hovering over the debate is what President Bush thinks. He has been resisting a stripped-down bill without a guaranteed vote on his capital-gains tax cut. But Republican senators saw no way to overcome a procedural hurdle and garner the 60 votes needed to win the capital-gains issue on the floor, so they went ahead with the streamlined bill.

The Senate bill was stripped of many popular, though revenue-losing, provisions, a number of which are included in the House-passed bill. These include a child-care initiative and extensions of soon-to-expire tax breaks for low-income housing and research-and-development expenditures. Also missing from the Senate bill is the House's repeal of a law, called Section 89, that compels companies to give rank-and-file workers comparable health benefits to top paid executives.

One high-profile provision that was originally in the Senate bill but was cut out because it lost money was the proposal by Chairman Lloyd Bentsen (D., Texas) of the Senate Finance Committee to expand the deduction for individual retirement accounts. Mr. Bentsen said he hopes the Senate will consider that measure soon.

To the delight of some doctors, the bill dropped a plan passed by the Finance Committee that would have overhauled the entire physician-reimbursement system under Medicare. To the detriment of many low-income people, efforts to boost Medicaid funding, especially in rural areas, also were stricken.

Asked why senators were giving up so much, New Mexico Sen. Pete Domenici, the ranking Republican on the Senate Budget Committee, said, "We're looking like idiots. Things had just gone too far."

Sen. Dole said that the move required sacrifice by every senator. It worked, others said, because there were no exceptions: all revenue-losing provisions were stricken.

The Senate also dropped a plan by its Finance Committee that would have increased the income threshold beyond which senior citizens have their Social Security benefits reduced. In addition, the bill dropped a plan to make permanent a 3% excise tax on long-distance telephone calls. It no longer includes a plan that would have repealed what remains of the completed-contract method of accounting, which is used by military contractors to reduce their tax burden. It also drops a provision that would have permitted corporations to use excess pension funds to pay health benefits for current retirees.

Also stricken was a fivefold increase in the maximum Occupational Safety and Health Administration penalties, which would have raised $65 million in fiscal 1990. A provision that would have made the Social Security Administration an independent agency was excised.

The approval of the Senate bill was especially sweet for Sen. Mitchell, who had proposed the streamlining. Mr. Mitchell's relations with Budget Director Darman, who pushed for a capital-gains cut to be added to the measure, have been strained since Mr. Darman chose to bypass the Maine Democrat and deal with other lawmakers earlier this year during a dispute over drug funding in the fiscal 1989 supplemental spending bill.

The deficit reduction bill contains $5.3 billion in tax increases in fiscal 1990, and $26 billion over five years. The revenue-raising provisions, which affect mostly corporations, would:

-- Prevent companies that have made leveraged buy-outs from getting federal tax refunds resulting from losses caused by interest payments on debt issued to finance the buy-outs, effective Aug. 2, 1989.

-- Require mutual funds to include in their taxable income dividends paid to them on the date that the dividends are declared rather than received, effective the day after the tax bill is enacted.

-- Close a loophole regarding employee stock ownership plans, effective June 6, 1989, that has been exploited by investment bankers in corporate takeovers. The measure repeals a 50% exclusion given to banks on the interest from loans used to acquire securities for an ESOP, if the ESOP owns less than 30% of the employer's stock.

-- Curb junk bonds by ending tax benefits for certain securities, such as zero-coupon bonds, that postpone cash interest payments.

-- Raise $851 million by suspending for one year an automatic reduction in airport and airway taxes.

-- Speed up the collection of the payroll tax from large companies, effective August 1990.

-- Impose a tax on ozone-depleting chemicals, such as those used in air conditioners and in Styrofoam, beginning at $1.10 a pound starting next year.

-- Withhold income taxes from the paychecks of certain farm workers currently exempt from withholding.

-- Change the collection of gasoline excise taxes to weekly from semimonthly, effective next year.

-- Restrict the ability of real estate owners to escape taxes by swapping one piece of property for another instead of selling it for cash.

-- Increase to $6 a person from $3 the international air-passenger departure tax, and impose a $3-a-person tax on international departures by commercial ships.

The measure also includes spending cuts and increases in federal fees. Among its provisions:

-- Reduction of Medicare spending in fiscal 1990 by some $2.8 billion, in part by curbing increases in reimbursements to physicians. The plan would impose a brief freeze on physician fees next year.

-- Removal of the U.S. Postal Service's operating budget from the federal budget, reducing the deficit by $1.77 billion. A similar provision is in the House version.

-- Authority for the Federal Aviation Administration to raise $239 million by charging fees for commercial airline-landing rights at New York's LaGuardia and John F. Kennedy International Airports, O'Hare International Airport in Chicago and National Airport in Washington.

-- Increases in Nuclear Regulatory Commission fees totaling $54 million.

-- Direction to the U.S. Coast Guard to collect $50 million from users of Coast Guard services.

-- Raising an additional $43 million by increasing existing Federal Communications Commission fees and penalties and establishing new fees for amateur radio operators, ship stations and mobile radio facilities.

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John E. Yang contributed to this article.

In response to your overly optimistic, outdated piece on how long unemployment lasts (People Patterns, Sept. 20):

I am in the communications field, above entry level. I was laid off in August 1988, and after a thorough and exhausting job search, was hired in August 1989. My unemployment insurance ran out before I found a job; I found cutbacks and layoffs in many companies.

The statistics quoted by the "new" Census Bureau report (garnered from 1984 to 1986) are out of date, certainly as an average for the Northeast, and possibly for the rest of the country.

I think what bothered me most about the piece was that there seemed to be an underlying attitude to tell your readers all is well -- if you're getting laid off don't worry, and if you're unemployed, it's a seller's market.

To top it off, you captioned the graph showing the average number of months in a job search as "Time Off." Are you kidding? Looking for a job was one of the most anxious periods of my life -- and is for most people. Your paper needs a serious reality check.

Reva Levin

Cambridge, Mass.

BULL HN INFORMATION SYSTEMS Inc. is a U.S. majority-owned unit of Cie. des Machines Bull. In Friday's edition, the name of the unit was misstated.

(See: "Bull's Chairman to Use U.S. Acquisitions to Lift Computer Maker's World Stature" -- WSJ Oct. 13, 1989)

Moody's Investors Service said it reduced its rating on $165 million of subordinated debt of this Beverly Hills, Calif., thrift, citing turmoil in the market for low-grade, high-yield securities. The agency said it reduced its rating on the thrift's subordinated debt to B-2 from Ba-2 and will keep the debt under review for possible further downgrade. Columbia Savings is a major holder of so-called junk bonds. New federal legislation requires that all thrifts divest themselves of such speculative securities over a period of years. Columbia Savings officials weren't available for comment on the downgrade.

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FRANKLIN SAVINGS ASSOCIATION (Ottawa, Kan.) -- Moody's Investors Service Inc. said it downgraded its rating to B-2 from Ba-3 on less than $20 million of this thrift's senior subordinated notes. The rating concern said Franklin's "troubled diversification record in the securities business" was one reason for the downgrade, citing the troubles at its L.F. Rothschild subsidiary and the possible sale of other subsidiaries. "They perhaps had concern that we were getting out of all these," said Franklin President Duane H. Hall. "I think it was a little premature on their part."

Just when it seemed safe to go back into stocks, Wall Street suffered another severe attack of nerves.

Does this signal another Black Monday is coming? Or is this an extraordinary buying opportunity, just like Oct. 19, 1987, eventually turned out to be?

Here's what several leading market experts and money managers say about Friday's action, what happens next and what investors should do.

Joseph Granville. "I'm the only one who said there would be an October massacre, all through late August and September," says Mr. Granville, once a widely followed market guru and still a well-known newsletter writer.

"Everyone will tell you that this time is different from 1987," he says. "Well, in some ways it is different, but technically it is just the same. If you're a technician, you obey the signals. Right now they're telling me to get the hell out and stay out. I see no major support until 2200. I see a possibility of going to 2200 this month."

Mr. Granville says he wouldn't even think of buying until at least 600 to 700 stocks have hit 52-week lows; about 100 stocks hit new lows Friday. "Most people," he says, "have no idea what a massacre pattern looks like."

Elaine Garzarelli. A quantitative analyst with Shearson Lehman Hutton Inc., Ms. Garzarelli had warned clients to take their money out of the market before the 1987 crash.

Friday's big drop, she says, "was not a crash. This was an October massacre" like those that occurred in 1978 and 1979. Now, as in those two years, her stock market indicators are positive. So she thinks the damage will be short-lived and contained.

"Those corrections lasted one to four weeks and took the market 10%-12% down," she says. "This is exactly the same thing, as far as I'm concerned." Thus, she says, if the Dow Jones Industrial Average dropped below 2450, "It would just be a fluke. My advice is to buy."

As she calculates it, the average stock now sells for about 12.5 times companies' earnings. She says that ratio could climb to 14.5, given current interest rates, and still be within the range of "fair value."

Ned Davis. Friday's fall marks the start of a bear market, says Mr. Davis, president of Ned Davis Research Inc. But Mr. Davis, whose views are widely respected by money managers, says he expects no 1987-style crash.

"There was a unique combination in 1987," he says. "Margin debt was at a record high. There was tremendous public enthusiasm for stock mutual funds. The main thing was portfolio insurance," a mechanical trading system intended to protect an investor against losses. "A hundred billion dollars in stock was subject" to it. In 1987, such selling contributed to a snowball effect.

Today could even be an up day, Mr. Davis says, if major brokerage firms agree to refrain from program trading. Over the next several months, though, he says things look bad.

"I think the market will be heading down into November," he says. "We will probably have a year-end rally, and then go down again. Sort of a two-step bear market." He expects the downturn to carry the Dow Jones Industrial Average down to around 2000 sometime next year. "That would be a normal bear market," he says. "I guess that's my forecast."

Leon G. Cooperman. "I don't think the market is going through another October '87. I don't think that's the case at all," says Mr. Cooperman, a partner at Goldman, Sachs & Co. and chairman of Goldman Sachs Asset Management.

Mr. Cooperman sees this as a good time to pick up bargains, but he doesn't think there's any need to rush. "I expect the market to open weaker Monday, but then it should find some stability."

He ticks off several major differences between now and two years ago. Unlike 1987, interest rates have been falling this year. Unlike 1987, the dollar has been strong. And unlike 1987, the economy doesn't appear to be in any danger of overheating.

But the economy's slower growth this year also means the outlook for corporate profits "isn't good," he says. "So it's a very mixed bag."

Thus, he concludes, "This is not a good environment to be fully invested" in stocks. "If I had come into Friday on margin or with very little cash in the portfolios, I would not do any buying. But we came into Friday with a conservative portfolio, so I would look to do some modest buying" on behalf of clients. "We're going to look for some of the better-known companies that got clocked" Friday.

John Kenneth Galbraith. "This is the latest manifestation of the capacity of the financial community for recurrent insanity," says Mr. Galbraith, an economist.

"I see this as a reaction to the whole junk bond explosion," he says. "The explosion of junk bonds and takeovers has lodged a lot of insecure securities in the hands of investors and loaded the corporations that are the objects of takeovers or feared takeovers with huge amounts of debt rather than equity. This has both made investors uneasy and the corporations more vulnerable."

Nevertheless, he says a depression doesn't appear likely. "There is more resiliency in the economy at large than we commonly suppose," he says. "It takes more error now to have a major depression than back in the Thirties -- much as the financial community and the government may try."

Mario Gabelli. New York money manager Mario Gabelli, an expert at spotting takeover candidates, says that takeovers aren't totally gone.

"Companies are still going to buy companies around the world," he says. Examples are "Ford looking at Jaguar, BellSouth looking at LIN Broadcasting." These sorts of takeovers don't require junk bonds or big bank loans to finance them, so Mr. Gabelli figures they will continue.

"The market was up 35% since {President} Bush took office," Mr. Gabelli says, so a correction was to be expected. He thinks another crash is "unlikely," and says he was "nibbling at" selected stocks during Friday's plunge.

"Stocks that were thrown out just on an emotional basis are a great opportunity {this} week for guys like me," he says.

Jim Rogers. "It seems to me that this is the pin that has finally pricked the balloon," says Mr. Rogers, a professor of finance at Columbia University and former co-manager of one of the most successful hedge funds in history, Quantum Fund.

He sees "economic problems, financial problems" ahead for the U.S., with a fairly strong possibility of a recession. "Friday you couldn't sell dollars," he says. Dealers "would give you a quote, but then refuse to make the trade." If the dollar stays weak, he says, that will add to inflationary pressures in the U.S. and make it hard for the Federal Reserve Board to ease interest rates very much.

Mr. Rogers won't decide what to do today until he sees how the London and Tokyo markets go. He recommends that investors sell takeover-related stocks, but hang on to some other stocks -- especially utilities, which often do well during periods of economic weakness.

Frank Curzio. Many people now claim to have predicted the 1987 crash. Queens newsletter writer Francis X. Curzio actually did it: He stated in writing in September 1987 that the Dow Jones Industrial Average was likely to decline about 500 points the following month.

Mr. Curzio says what happens now will depend a good deal on the Federal Reserve Board. If it promptly cuts the discount rate it charges on loans to banks, he says, "That could quiet things down." If not, "We could go to 2200 very soon."

Frank W. Terrizzi. Stock prices "would still have to go down some additional amount before we become positive on stocks," says Mr. Terrizzi, president and managing director of Renaissance Investment Management Inc. in Cincinnati.

Renaissance, which manages about $1.8 billion, drew stiff criticism from many clients earlier this year because it pulled entirely out of stocks at the beginning of the year and thus missed a strong rally.

Renaissance is keeping its money entirely in cash equivalents, primarily U.S. Treasury bills. "T-bills probably are the right place to be," he says.

(See related story: "Your Money Matters: Unloading Stocks Worst Step to Take" -- WSJ Oct. 16, 1989)

Regarding the Oct. 3 letter to the editor from Rep. Tom Lantos, chairman of the House Subcommittee on Employment and Housing, alleging:

1. That your Sept. 28 editorial "Kangaroo Committees" was factually inaccurate and deliberately misleading.

I thought your editorial was factually accurate and deliberately elucidative.

2. That Mr. Lantos supported the rights of the witnesses to take the Fifth Amendment.

Yes, he did. As I watched him on C-Span, I heard him speak those lovely words about the Bill of Rights, which he quotes from the transcript of the hearings. He did repeat those nice platitudes several times as an indication of his support for the Constitution. He used about 56 words defending the witnesses' constitutional rights.

Unfortunately, by my rough guess, he used better than 5,000 words heaping scorn on the witnesses for exercising the Fifth. He sandwiched his praise of constitutional meat between large loaves of bilious commentary. As your editorial rightly pointed out, Samuel Pierce, former HUD secretary, and Lance Wilson, Mr. Pierce's former aide, "are currently being held up to scorn for taking the Fifth Amendment." That certainly is not the supposed "distorted reading" indicated by Mr. Lantos.

3. That his "committee does not deal with any possible criminal activity at HUD. My colleagues and I fully realize we are not a court . . . etc."

Absolute rubbish. By any "reasonable man" criterion, Mr. Lantos and his colleagues have a whole bunch of people tried and convicted. Apparently, their verdict is in. Right now they're pursuing evidence. That's not a bad way to proceed, just somewhat different from standard American practice.

How was that practice referred to when I was in school? Ah, yes, something called a Star Chamber.

Of course, Mr. Lantos doth protest that his subcommittee simply seeks information for legislative change. No doubt that's partially true. Everything that Mr. Lantos says in his letter is partially true. He's right about his subcommittee's responsibilities when it comes to obtaining information from prior HUD officials. But if his explanation of motivation is true, why is his investigation so oriented as to identify criminal activity? Why not simply questions designed to identify sources and causes of waste and inefficiency? Such as, what happened when Congress wanted to know about $400 toilet seats or whatever they supposedly cost? No, Mr. Lantos's complaints simply won't wash.

4. That the Journal defends "the sleaze, fraud, waste, embezzlement, influence-peddling and abuse of the public that took place while Mr. Pierce was secretary of HUD," etc. and so forth.

No, to my mind, the Journal did not "defend sleaze, fraud, waste, embezzlement, influence-peddling and abuse of the public trust . . ." it defended appropriate constitutional safeguards and practical common sense.

The problem, which the Journal so rightly pointed out in a number of articles, is not the likes of Mr. Lantos, who after all is really a bit player on the stage, but the attempt by Congress to enhance itself into a quasi-parliamentary/judicial body. (Of course, we've also got a judiciary that seeks the same objective.) The system is the problem, not an individual member. Individuals can always have their hands slapped. It's when such slapping doesn't occur that we've got trouble.

I do not by any means defend HUD management. But I think the kind of congressional investigation that has been pursued is a far greater danger to American notions of liberty and freedom than any incompetency (and, yes, maybe criminality) within HUD could possibly generate. The last time I saw a similar congressional hearing was when "Tail Gunner Joe" McCarthy did his work.

Raymond Weber

Parsippany, N.J.

---

I disagree with the statement by Mr. Lantos that one should not draw an adverse inference against former HUD officials who assert their Fifth Amendment privilege against self-incrimination in congressional hearings.

The Fifth Amendment states in relevant part that no person "shall be compelled, in any criminal case, to be a witness against himself." This privilege against self-incrimination precludes the drawing of an adverse inference against a criminal defendant who chooses not to testify. Thus, in a criminal case, a prosecutor cannot comment on a defendant's failure to testify nor can the defendant be compelled to take the stand as a witness, thus forcing him to "take the Fifth." The privilege, however, has been limited in accordance with its plain language to protect the defendant in criminal matters only.

The Supreme Court and some states have specifically recognized that "the Fifth Amendment does not preclude the inference where the privilege is claimed by a party to a civil cause." Baxter v. Palmingiano, 425 U.S. 308 (1976). Thus, in a civil case, a defendant may be called as a witness, he may be forced to testify or take the Fifth, and his taking of the Fifth may permit the drawing of an adverse inference against him in the civil matter. He may take the Fifth in a civil matter only if he has a good faith and justifiable belief that his testimony may subject him to criminal prosecution. Allowing the defendant to take the Fifth in a civil matter is not based on a constitutional right to refuse to testify where one's testimony harms him in the civil matter, but because the testimony in the civil matter could be unconstitutionally used against him in a subsequent criminal prosecution. Absent the risk of such prosecution, a court may order the defendant to testify.

Thus, when Mr. Pierce asserted the Fifth in a noncriminal proceeding, particularly after presumably receiving extensive advice from legal counsel, one must conclude that he held a good-faith, justifiable belief that his testimony could be used against him in a subsequent criminal prosecution. The subcommittee, Congress and the American public have every right to draw the adverse inference and to concur with Mr. Pierce's own belief that his testimony could help convict him of a crime. Drawing the adverse inference in a noncriminal congressional hearing does not offend the Fifth Amendment shield against self-incrimination.

Clark S. Spalsbury Jr.

Estes Park, Colo.

It was Friday the 13th, and the stock market plummeted nearly 200 points. Just a coincidence? Or is triskaidekaphobia -- fear of the number 13 -- justified?

In academia, a so-called Friday the 13th effect has been set up and shot down by different professors.

Robert Kolb and Ricardo Rodriguez, professors of finance at the University of Miami, found evidence that the market is spooked by Friday the 13th. But their study, which spanned the 1962-85 period, has since been shown to be jinxed by an unlucky choice of data.

In the '70s, the market took falls nine times in a row on Friday the you-know-what. But the date tends to be a plus, not a minus, for stocks, according to Yale Hirsch, a collector of stock market lore.

Another study found that the 82 Fridays the 13th in the 1940-1987 period had higher than average returns -- higher even than Fridays in general, which tend to be strong days for stock prices.

On the only other Friday the 13th this year, the Dow Jones Industrial Average rose about four points.

Professor Kolb says the original study, titled Friday the 13th, Part VII, was published tongue-in-cheek. In a similar vein, he adds that the anniversary of the 1987 crash and Saturday's full moon could have played a part, too, in Friday's market activity.

reminiscent of those during the 1987 crash -- that as stock prices plummeted and trading activity escalated, some phone calls to market makers in over-the-counter stocks went unanswered.

"We couldn't get dealers to answer their phones," said Robert King, senior vice president of OTC trading at Robinson-Humphrey Co. in Atlanta. "It was {like} the Friday before Black Monday" two years ago.

Whether unanswered phone calls had any effect or not, Nasdaq stocks sank far less than those on the New York and American exchanges. Nonetheless, the Nasdaq Composite Index suffered its biggest point decline of the year and its sixth worst ever, diving 14.90, or 3%, to 467.29. Ten points of the drop occurred during the last 45 minutes of trading. By comparison, the New York Stock Exchange Composite tumbled 5.8% Friday and the American Stock Exchange Composite fell 4%.

On Oct. 16, 1987, the Nasdaq Composite fell 16.18 points, or 3.8%, followed by its devastating 46.12-point, or 11% slide, three days later.

Nasdaq volume Friday totaled 167.7 million shares, which was only the fifth busiest day so far this year. The single-day record of 288 million shares was set on Oct. 21, 1987.

"There wasn't a lot of volume because it was just impossible to get stock moved," said E.E. "Buzzy" Geduld, president of Herzog, Heine, Geduld, a New York company that makes markets in thousands of OTC issues.

Most of the complaints about unanswered phone calls came from regional brokers rather than individual investors. Mr. King of Robinson-Humphrey and others were quick to add that they believe the problem stemmed more from traders' inability to handle the volume of calls, rather than a deliberate attempt to avoid making trades.

The subject is a sore one for Nasdaq and its market-making companies, which were widely criticized two years ago following complaints from investors who couldn't reach their brokers or trade in the chaos of the crash.

Peter DaPuzzo, head of retail equity trading at Shearson Lehman Hutton, declared: "It was the last hour of trading on a Friday. There were too many phones ringing and too many things happening to expect market makers to be as efficient as robots. It wasn't intentional, we were all busy."

James Tarantino, head of OTC trading at Hambrecht & Quist in San Francisco, said, "It was just like two years ago. Everybody was trying to do the same thing at the same time."

Jeremiah Mullins, the OTC trading chief at Dean Witter Reynolds in New York, said proudly that his company executed every order it received by the close of trading. But, he added, "you can only take one call at a time."

Market makers keep supplies of stock on hand to maintain orderly trading when imbalances occur. On days like Friday, that means they must buy shares from sellers when no one else is willing to. When selling is so frenzied, prices fall steeply and fast. Two years ago, faced with the possibility of heavy losses on the stocks in their inventories, market makers themselves began dumping shares, exacerbating the slide in OTC stock prices.

On Friday, some market makers were selling again, traders said. But, with profits sagging on Wall Street since the crash, companies have kept smaller share stockpiles on hand.

Mr. Tarantino of Hambrecht & Quist said some prices fell without trades taking place, as market makers kept dropping the prices at which they would buy shares. "Everyone was hitting everyone else's bid," he said.

So, while OTC companies incurred losses on Friday, trading officials said the damage wasn't as bad as it was in 1987. "Two years ago we were carrying huge inventories and that was the big culprit. I don't know of anyone carrying big inventories now," said Mr. King of Robinson-Humphrey.

Tony Cecin, head of equity trading at Piper, Jaffray & Hopwood in Minneapolis, said that Piper Jaffray actually made money on Friday. It helped that his inventory is a third smaller now than it was two years ago, he said.

Joseph Hardiman, president of the National Association of Securities Dealers, which oversees the Nasdaq computerized trading system, said that despite the rush of selling, he never considered the situation an "emergency."

"The pace of trading was orderly," he said. Nasdaq's Small Order Execution System "worked beautifully," as did the automated system for larger trades, according to Mr. Hardiman.

Nevertheless, the shock of another steep plunge in stock prices undoubtedly will shake many investors' confidence. In the past, the OTC market thrived on a firm base of small-investor participation. Because Nasdaq's trading volume hasn't returned to pre-crash levels, traders and OTC market officials hope the damage won't be permanent.

But they are worried. "We were just starting to get the public's confidence back," lamented Mr. Mullins of Dean Witter.

More troubling is the prospect that the overall collapse in stock prices could permanently erode the base of small-investor support the OTC market was struggling to rebuild in the wake of the October 1987 crash.

Mr. Cecin of Piper Jaffray says some action from government policy makers would allay investor fears. It won't take much more to "scare the hell out of retail investors," he says.

The sellers on Friday came from all corners of the OTC market -- big and small institutional investors, as well as individual investors and market makers. But grateful traders said the sell orders generally ranged from 20,000 shares to 50,000 shares, compared with blocks of 500,000 shares or more two years ago.

Shearson's Mr. DaPuzzo said retail investors nervously sold stock Friday and never returned to bargain-hunt. Institutional investors, which had been selling stock throughout last week to lock in handsome gains made through the third quarter, were calmer.

"We had a good amount of selling from institutions, but not as much panic," Mr. DaPuzzo said. "If they couldn't sell, some of them put the shares back on the shelf." In addition, he said, some bigger institutional investors placed bids to buy some OTC stocks whose prices were beaten down.

In addition, Mr. DaPuzzo said computer-guided program selling of OTC stocks in the Russell Index of 2000 small stocks and the Standard & Poor's 500-stock Index sent occasional "waves " through the market.

Nasdaq's biggest stocks were hammered. The Nasdaq 100 Index of the largest nonfinancial issues, including the big OTC technology issues, tumbled 4.2%, or 19.76, to 449.33. The Nasdaq Financial Index of giant insurance and banking stocks dropped 2%, or 9.31, to 462.98.

The OTC market has only a handful of takeover-related stocks. But they fell sharply. McCaw Cellular Communications, for instance, has offered to buy LIN Broadcasting as well as Metromedia's New York City cellular telephone interests, and in a separate transaction, sell certain McCaw properties to Contel Cellular. McCaw lost 8%, or 3 1/2, to 40. LIN Broadcasting, dropped 5 1/2, or 5%, to 107 1/2. The turnover in both issues was roughly normal.

On a day when negative takeover-related news didn't sit well with investors, Commercial Intertech, a maker of engineered metal parts, said Haas & Partners advised it that it doesn't plan to pursue its previously reported $27.50-a-share bid to buy the company. Commercial Intertech plummeted 6 to 26.

The issues of companies with ties to the junk bond market also tumbled Friday. On the OTC market, First Executive, a big buyer of the high-risk, high-yield issues, slid 2 to 12 1/4.

Among other OTC issues, Intel, dropped 2 1/8 to 33 7/8; Laidlaw Transportation lost 1 1/8 to 19 1/2; the American depositary receipts of Jaguar were off 1/4 to 10 1/4; MCI Communications slipped 2 1/4 to 43 1/2; Apple Computer fell 3 to 45 3/4 and Nike dropped 2 1/4 to 66 3/4.

Friday, October 13, 1989

The key U.S. and foreign annual interest rates below are a guide to general levels but don't always represent actual transactions.

PRIME RATE: 10 1/2%. The base rate on corporate loans at large U.S. money center commercial banks.

FEDERAL FUNDS: 8 13/16% high, 8 1/2% low, 8 5/8% near closing bid, 8 3/4% offered. Reserves traded among commercial banks for overnight use in amounts of $1 million or more. Source: Fulton Prebon (U.S.A.) Inc.

DISCOUNT RATE: 7%. The charge on loans to depository institutions by the New York Federal Reserve Bank.

CALL MONEY: 9 3/4% to 10%. The charge on loans to brokers on stock exchange collateral.

COMMERCIAL PAPER placed directly by General Motors Acceptance Corp.: 8.60% 30 to 44 days; 8.55% 45 to 59 days; 8.375% 60 to 79 days; 8.50% 80 to 89 days; 8.25% 90 to 119 days; 8.125% 120 to 149 days; 8% 150 to 179 days; 7.625% 180 to 270 days.

COMMERCIAL PAPER: High-grade unsecured notes sold through dealers by major corporations in multiples of $1,000: 8.65% 30 days; 8.55% 60 days; 8.55% 90 days.

CERTIFICATES OF DEPOSIT: 8.15% one month; 8.15% two months; 8.13% three months; 8.11% six months; 8.08% one year. Average of top rates paid by major New York banks on primary new issues of negotiable C.D.s, usually on amounts of $1 million and more. The minimum unit is $100,000. Typical rates in the secondary market: 8.65% one month; 8.65% three months; 8.55% six months.

BANKERS ACCEPTANCES: 8.52% 30 days; 8.37% 60 days; 8.15% 90 days; 7.98% 120 days; 7.92% 150 days; 7.80% 180 days. Negotiable, bank-backed business credit instruments typically financing an import order.

LONDON LATE EURODOLLARS: 8 13/16% to 8 11/16% one month; 8 13/16% to 8 11/16% two months; 8 13/16% to 8 11/16% three months; 8 3/4% to 8 5/8% four months; 8 11/16% to 8 9/16% five months; 8 5/8% to 8 1/2% six months.

LONDON INTERBANK OFFERED RATES (LIBOR): 8 3/4% one month; 8 3/4% three months; 8 9/16% six months; 8 9/16% one year. The average of interbank offered rates for dollar deposits in the London market based on quotations at five major banks.

FOREIGN PRIME RATES: Canada 13.50%; Germany 8.50%; Japan 4.875%; Switzerland 8.50%; Britain 15%. These rate indications aren't directly comparable; lending practices vary widely by location.

TREASURY BILLS: Results of the Tuesday, October 10, 1989, auction of short-term U.S. government bills, sold at a discount from face value in units of $10,000 to $1 million: 7.63% 13 weeks; 7.60% 26 weeks.

FEDERAL HOME LOAN MORTGAGE CORP. (Freddie Mac): Posted yields on 30-year mortgage commitments for delivery within 30 days. 9.91%, standard conventional fixedrate mortgages; 7.875%, 2% rate capped one-year adjustable rate mortgages. Source: Telerate Systems Inc.

FEDERAL NATIONAL MORTGAGE ASSOCIATION (Fannie Mae): Posted yields on 30 year mortgage commitments for delivery within 30 days (priced at par) 9.86%, standard conventional fixed-rate mortgages; 8.85%, 6/2 rate capped one-year adjustable rate mortgages. Source: Telerate Systems Inc.

MERRILL LYNCH READY ASSETS TRUST: 8.33%. Annualized average rate of return after expenses for the past 30 days; not a forecast of future returns.

Pension funds, insurers and other behemoths of the investing world said they began scooping up stocks during Friday's market rout. And they plan to buy more today.

Rightly or wrongly, many giant institutional investors appear to be fighting the latest war by applying the lesson they learned in the October 1987 crash: Buying at the bottom pays off.

To be sure, big investors might put away their checkbooks in a hurry if stocks open sharply lower today. They could still panic and bail out of the market. But their 1987 performance indicates that they won't abandon stocks unless conditions get far worse.

"Last time, we got rewarded for going out and buying stocks when the panic was the worst," said John W. Rogers, president of Chicago-based Ariel Capital Management Inc., which manages $1.1 billion of stocks.

Mr. Rogers spent half his cash on hand Friday for "our favorite stocks that have fallen apart." He expects to invest the rest if the market weakens further.

Denver-based portfolio manager James Craig wasn't daunted when Friday's rout shaved $40 million from the value of the $752 million Janus Fund he oversees. "I waited to make sure all the program trades had kicked through," he said. Then he jumped into the market: "I spent $30 million in the last half-hour."

Other money managers also opened their wallets. "I was buying at the close (Friday) and I'll be buying again because I know we're getting good value," said Frederick A. Moran, president of Moran Asset Management Inc., Greenwich, Conn. "There is no justification on the fundamental level for this crash."

Unlike mutual funds, which can be forced to sell stockholdings when investors rush to withdraw money, big investors such as pension funds and insurance companies can decide to ride out market storms without jettisoning stock. Most often, they do just that, because stocks have proved to be the best-performing long-term investment, attracting about $1 trillion from pension funds alone.

"If you bought after the crash, you did very very well off the bottom," said Stephen B. Timbers, chief investment officer of Chicago-based Kemper Financial Services Inc. The $56 billion California Public Employees Retirement System, for one, added $1 billion to its stock portfolio two years ago.

"The last crash taught institutional investors that they have to be long-term holders, and that they can't react to short-term events, good or bad," said Stephen L. Nesbitt, senior vice president for the pension consultants Wilshire Associates in Santa Monica, Calif. "Those that pulled out (of stocks) regretted it," he said, "so I doubt you'll see any significant changes" in institutional portfolios as a result of Friday's decline.

Stocks, as measured by the Standard & Poor's 500-stock index, have been stellar performers this year, rising 27.97% before Friday's plunge, excluding dividends. Even Friday's slump leaves investors ahead more than 20%, well above the annual average for stocks over several decades.

"You could go down 400 points and still have a good year in the market," said James D. Awad, president of New York-based BMI Capital Corp.

Mr. Awad, however, worries that the market "could go down 800 or 900 points in the next few days. It can happen before you can turn around." He said he discerns many parallels with 1987, including the emphasis on takeover stocks and the re-emergence of computerized program trading. "The only thing you don't have," he said, "is the `portfolio insurance' phenomenon overlaid on the rest."

Most institutional investors have abandoned the portfolio insurance hedging technique, which is widely thought to have worsened the 1987 crash. Not really insurance, this tactic was designed to soften the blow of declining stock prices and generate an offsetting profit by selling waves of S&P futures contracts. In its severest test, the $60 billion of portfolio insurance in effect in the 1987 crash didn't work, as stock buyers disappeared and stock and futures prices became disconnected.

Even without portfolio insurance, market conditions were grim Friday, money managers said. Neil Weisman, whose New York-based Chilmark Capital Partners had converted 85% of its $220 million investment pool to cash in recent months, said he was besieged by Wall Street firms Friday asking him to take stock off their hands.

"We got calls from big block houses asking us if we want to make bids on anything," said Mr. Weisman, who, happy with his returns on investments chalked up earlier, declined the offers.

Mr. Weisman predicts stocks will appear to stabilize in the next few days before declining again, trapping more investors. "I think it will be a rigor mortis rally," he said. Meanwhile, Friday brought a reprieve for money managers whose investment styles had put them at odds with the market rally. Especially gleeful were the short sellers, who have been pounded by this year's market climb.

The shorts sell borrowed shares, hoping to profit by replacing them later at a lower price. The nation's largest short-selling operation is Feshbach Brothers, Palo Alto, Calif., which said last May that its short positions had shown losses of 10% for the year up to that point.

All that now has changed. "We're ahead for the year because of Friday," said the firm's Kurt Feshbach. "We're not making a killing, but we had a good day."

Food and Drug Administration spokesman Jeff Nesbit said the agency has turned over evidence in a criminal investigation concerning Vitarine Pharmaceuticals Inc. to the U.S. Attorney's office in Baltimore.

Neither Vitarine nor any of the Springfield Gardens, N.Y., company's officials or employees have been charged with any crimes. Vitarine won approval to market a version of a blood pressure medicine but acknowledged that it substituted a SmithKline Beecham PLC product as its own in tests.

Mr. Nesbit also said the FDA has asked Bolar Pharmaceutical Co. to recall at the retail level its urinary tract antibiotic. But so far the company hasn't complied with that request, the spokesman said.

Bolar, the subject of a criminal investigation by the FDA and the Inspector General's office of the Health and Human Services Department, only agreed to recall two strengths of its version of Macrodantin "as far down as direct customers, mostly wholesalers," Mr. Nesbit said.

Bolar, of Copiague, N.Y., earlier began a voluntary recall of both its 100 milligram and 50 milligram versions of the drug.

The FDA has said it presented evidence it uncovered to the company indicating that Bolar substituted the brand-name product for its own to gain government approval to sell generic versions of Macrodantin. Bolar has denied that it switched the brand-name product for its own in such testing.

The West German retailer ASKO Deutsche Kaufhaus AG plans to challenge the legality of a widely employed anti-takeover defense of companies in the Netherlands.

The eventual court decision could become a landmark in Dutch corporate law because the lawsuit ASKO plans to file would be the first to challenge the entire principle and practice of companies issuing voting preferred shares to management-controlled trusts to dilute voting power of common stockholders.

Up to now only specific aspects of these defenses have been challenged, though unsuccessfully, ASKO's Dutch lawyers noted.

Should the courts uphold the validity of this type of defense, ASKO will then ask the court to overturn such a vote-diluting maneuver recently deployed by Koninklijke Ahold NV. ASKO says the Dutch-based international food retailer hadn't reasonable grounds to issue preferred stock to a friendly trust and thus dilute the worth and voting power of ASKO and other shareholders.

Speaking through its Dutch lawyers, ASKO also disclosed it holds a 15% stake in Ahold. It was previously thought ASKO held a 13.6% stake that was accumulated since July.

A spokesman for Ahold said his company is confident of its own position and the propriety of the preferred-share issue. He termed ASKO's legal actions as "unproductive" to international cooperation among European retailers.

Chase Manhattan Bank Chairman Willard Butcher is a conservative banker and a loyal Republican, but on Friday morning he had few kind words for President Bush's economic policy-making.

"There are some very significant issues out there, such as the fiscal deficit, the trade deficit, our relations with Japan, that have to be the subject of major initiatives," he said in an interview. "I'd like to see that initiative, and I haven't. There isn't a big shot, an agenda."

A few hours later, the stock market dropped 190 points.

Politicians tried to finger each other for the blame, although many analysts doubt that Washington was singly responsible for Wall Street's woes. But Mr. Butcher's comments make one thing clear: Some on Wall Street wonder if anyone is in charge of economic policy.

Consider this:

-- By 11:59 p.m. tonight, President Bush must order $16 billion of automatic, across-the-board cuts in government spending to comply with the Gramm-Rudman budget law. The cuts are necessary because Congress and the administration have failed to reach agreement on a deficit-cutting bill. "We simply don't have strong leadership to try to reduce the deficit and make tough choices," House Budget Committee Chairman Leon Panetta (D., Calif.) said yesterday on NBC News's "Meet the Press."

-- For the last two weeks, the Bush administration and the Federal Reserve have been engaged in a semi-public battle over international economic policy. The administration has been trying to push the dollar lower; the Fed has been resisting. "One of the things that continues to worry me is this monetary warfare between the Treasury Department and the Federal Reserve Board," said Lawrence Kudlow, a Bear, Stearns & Co. economist, on ABC's "This Week."

-- The administration has sent out confusing signals about its response to a recent spate of airline takeovers.

Last month, Transportation Secretary Sam Skinner forced Northwest Airlines to reduce a stake held by KLM Royal Dutch Airlines. But he has since run into opposition from the Treasury and the White House over that decision. And he has kept mum on how his decision might affect a bid for United Airlines, which includes a big stake by British Airways PLC. Some analysts say uncertainty about Washington's anti-takeover policy was one reason that financing for the United Airlines takeover fell through -- the event that triggered the market drop.

In many ways, the backdrop to Friday's stock decline is eerily similar to that of October 1987's 508-point crash. Then, as now, the budget debate was behind schedule and automatic spending cuts were within days of taking hold. The Treasury was locked in a battle over international economic policy, although at that time it was with West German officials rather than the Federal Reserve. And concern about official actions aimed at takeovers -- then by the tax-writing House Ways and Means Committee rather than the Transportation Department -- were making markets nervous.

The 1987 crash brought the Reagan administration and Democratic lawmakers to the table for the first budget summit, resulting in a two-year plan to reduce the deficit by more than $76 billion -- even though the deficit actually rose by nearly $12 billion during that period.

But, barring further drops in the market this week, a similar outcome doesn't seem likely this year. Lawmakers and administration officials agree that Friday's drop, by itself, isn't enough to force both sides back to the table to try to reach a deficit-reduction agreement that would be more serious and more far-reaching than last spring's gimmick-ridden plan, which still isn't fully implemented.

One of the biggest reasons that new talks aren't likely to come about is that, as everyone learned in 1987, the economy and the market can survive a one-day 508-point tumble. "Everybody thought we were looking at a repetition of 1929, that we were looking at a recession," Rep. Panetta said yesterday in an interview. "That did not happen. They learned they could survive it without much problem."

But administration officials privately agree with Mr. Panetta, who said a precipitous drop this week "is going to force the president and Congress to take a much harder look at fiscal policy."

In that case, there will be plenty of blame to go around. "There is an underlying concern on the part of the American people -- and there should be-that the administration has not gone far enough in cutting this deficit and that Congress has been unwilling to cut what the administration asked us to cut," said Senate Finance Committee Chairman Lloyd Bentsen (D., Texas).

Nevertheless, it clearly will take more than Friday's 190-point decline to overcome the bitter feelings that have developed between lawmakers and White House Budget Director Richard Darman over the capital-gains fight. Hill Democrats are particularly angry over Mr. Bush's claim that the capital-gains cut was part of April's budget accord and his insistence on combining it with the deficit-reduction legislation.

"There is no prospect of any so-called grand compromise or deal next year because the administration simply didn't live up to this year's deal," Senate Majority Leader George Mitchell (D., Maine) said yesterday on CBS News's "Face the Nation."

During last week's maneuverings on the deficit-cutting bill and the capital-gains issue, there were signs that Senate Republicans and the administration were at odds. At the very moment that Senate Republicans were negotiating a deal to exclude capital gains from the deficit-reduction legislation, White House spokesman Marlin Fitzwater told reporters that it was the president's policy to include it.

When an agreement was reached to strip capital gains from the legislation, Oregon Sen. Bob Packwood, the ranking GOP member of the tax-writing Senate Finance Committee, hailed it. Asked if the administration agreed, he curtly replied: "The adminstration will have to speak for itself."

Friday's market tumble could spur action on reconciling the House and Senate versions of the deficit-reduction measure, a process that isn't expected to begin until tomorrow at the soonest.

Senate Republicans expressed the hope that the House would follow the lead of the Senate, which on Friday agreed to drop a variety of spending measures and tax breaks that would have increased the fiscal 1990 deficit.

"The market needs a strong signal that we're serious about deficit reduction, and the best way to do that is for the House of Representatives to strip their bill" of similar provisions, Sen. Warren Rudman (R., N.H.). said yesterday.

The White House Office of Management and Budget, whose calculations determine whether the Gramm-Rudman targets are met, estimated that the House-passed deficit-reduction measure would cut the fiscal 1990 shortfall by $6.2 billion, almost half of the Congressional Budget Office's estimate of $11.0 billion. Rep. Panetta said that OMB's figure would still be enough to avoid permanent across-the-board cuts, but added: "We're getting very close to the margins here."

No one in Washington was willing to take the blame for provoking Friday's drop in the stock market. But some players were quick to seize the moment. Before the sun had set on Friday, Richard Rahn, the supply-side chief economist of the U.S. Chamber of Commerce, issued a statement attributing the drop in stock prices to the Senate decision to postpone action on capital gains. "Investors, who had been holding assets in anticipation of a more favorable time to sell, were spooked," he said.

"There have been many preposterous reasons advanced to support a capital-gains tax cut," Sen. Mitchell said during his television appearance, "but I suggest that is perhaps more than any of the others."

The following U.S. Treasury, corporate and municipal offerings are tentatively scheduled for sale this week, according to Dow Jones Capital Markets Report: @ U.S. TREASURY @ Today

$15.2 billion of three-month and six-month bills. @ Wednesday

Two-year notes, refinancing about $9.6 billion in maturing debt. @ Thursday

$9.75 billion of 52-week bills. @ CORPORATE @ Thursday

Connecticut Light & Power Co. -- Three million shares of $25 preferred, via competitive bidding. @ One Day This Week

B&H Crude Carriers Ltd. -- Four million common shares, via Salomon Brothers Inc.

Baldwin Technology Co. -- 2.6 million Class A shares, via Smith Barney Harris Upham & Co.

Blockbuster Entertainment Corp. -- $250 million (face amount) Liquid Yield Option Notes, via Merrill Lynch Capital Markets.

Chase Manhattan Corp. -- 14 million common shares, via Goldman, Sachs & Co.

Comcast Corp. -- $150 million convertible debentures, via Merrill Lynch.

CSS Industries -- 1.3 million common shares, via Merrill Lynch.

Eastern Utilities Associates -- 1.5 million common shares, via PaineWebber Inc.

Employee Benefit Plans Inc. -- Two million common shares, via Dean Witter Capital Markets.

Exabyte Corp. -- 2,850,000 common shares, via Goldman Sachs.

Knowledgeware Inc. -- 2.4 million common shares, via Montgomery Securities. @ Municipal @ Tuesday

Oregon -- $100 million of general obligation veterans' tax notes, Series 1989, via competitive bid. @ Wednesday

Washington, D.C. -- $200 million of 1990 general obligation tax revenue notes (Series 1990A), via competitive bid. @ Thursday

Virginia Public School Authority -- $55,730,000 of school financing bonds, 1989 Series B (1987 resolution), via competitive bid. @ One Day In The Week

Austin, Texas -- $68,230,000 of various bonds, including $32 million hotel occupancy tax revenue bonds, Series 1989A, and $36.23 million convention center revenue bonds, Series 1989B, via a Morgan Stanley & Co. group.

California Health Facilities Financing Authority -- $144.5 million of Kaiser Permanente revenue bonds, via a PaineWebber group.

Connecticut -- $100 million of general obligation capital appreciation bonds, College Savings Plan, 1989 Series B, via a Prudential-Bache Capital Funding group.

Pennsylvania Higher Education Facilities Authority -- $117 million of revenue bonds for Hahnemann University, Series 1989, via a Merrill Lynch group.

Tennessee Valley Authority -- Three billion of power bonds, via First Boston Corp.

University of Medicine And Dentistry of New Jersey -- $55 million of Series C bonds, via a Prudential-Bache group.

West Virginia Parkways, Economic Development And Tourism Authority -- $143 million of parkway revenue bonds, Series 1989, via a PaineWebber group. @ Pending

San Antonio, Texas -- $640 million of gas and electric revenue refunding bonds, via a First Boston group.

South Dakota Health & Education Facility Authority -- $51.1 million of Rapid City Regional Hospital bonds, via a Dougherty, Dawkins, Strand & Yost Inc. group.

Small investors matched their big institutional brethren in anxiety over the weekend, but most seemed to be taking a philosophical approach and said they were resigned to riding out the latest storm in the stock market.

"I'm not losing faith in the market," said Boston lawyer Christopher Sullivan as he watched the market plunge on a big screen in front of a brokerage firm. But he's not so sure about everyone else.

"I think on Monday the small (investors) are going to panic and sell," predicted Mr. Sullivan, whose investments include AMR Corp.'s American Airlines unit and several mutual funds. "And I think institutions are going to come in and buy . . . I'm going to hold on. If I sell now, I'll take a big loss."

Some evinced an optimism that had been rewarded when they didn't flee the market in 1987. "Oh, I bet it'll be up 50 points on Monday," said Lucy Crump, a 78-year-old retired housewife in Lexington, Ky. Mrs. Crump said her Ashwood Investment Club's portfolio lost about one-third of its value following the Black Monday crash, "but no one got discouraged, and we gained that back -- and more."

At the annual congress of the National Association of Investors Corp. at the Hyatt Regency hotel in Minneapolis, the scene was calm. Some 500 investors representing investor clubs from around the U.S. were attending when the market started to slide Friday. But Robert Showalter, an official of the association, said no special bulletins or emergency meetings of the investors' clubs are planned.

In fact, some of the association's members -- long-term, buy-and-hold investors -- welcomed the drop in prices. "We hope to take advantage of it," said John Snyder, a member of a Los Angeles investors' club. He has four stocks in mind to buy if the prices drop to the level he wants. Not everyone is reacting so calmly, however, and many wonder about the long-term implications of what is widely viewed as the cause of Friday's slide, reluctance by banks to provide financing for a buy-out of UAL Corp., parent of United Airlines.

Marc Perkins, a Tampa, Fla., investment banker, said the market drop is one of "a tremendous number of signs that the leveraged take-out era is ending. There's no question that there's a general distaste for leverage among lenders." Mr. Perkins believes, however, that the market could be stabilized if California investor Marvin Davis steps back in to the United bidding with an offer of $275 a share.

Sara Albert, a 34-year-old Dallas law student, says she's generally skittish about the stock market and the takeover activity that seems to fuel it. "I have this feeling that it's built on sand," she says, that the market rises "but there's no foundation to it." She and her husband pulled most of their investments out of the market after the 1987 crash, although she still owns some Texaco stock. Partly because of concern about the economy and partly because she recently quit her job as a legal assistant to go to school, "I think at this point we want to be a lot more liquid."

Others wonder how many more of these shocks the small investor can stand. "We all assumed October '87 was a one-time shot," said San Francisco attorney David Greenberg. "We told the little guy it could only happen once in a lifetime, come on back. Now it's happening again." Mr. Greenberg got out just before the 1987 crash and, to his regret, never went back even as the market soared. This time he's ready to buy in "when the panic wears off." Still, he adds: "We can't have this kind of thing happen very often. When the little guy gets frightened, the big guys hurt badly. Merrill Lynch can't survive without the little guy."

Small investors have tiptoed back into the market following Black Monday, but mostly through mutual funds. Discount brokerage customers "have been in the market somewhat but not whole hog like they were two years ago," says Leslie Quick Jr., chairman of the Quick & Reilly discount brokerage firm. Hugo Quackenbush, senior vice president at Charles Scwhab Corp., says Schwab customers "have been neutral to cautious recently about stocks." Individual investors are still angry about program trading, Mr. Quackenbush says.

Avner Arbel, a Cornell University finance professor, says government regulators will have to more closely control program trading to "win back the confidence of the small investor."

But it's not only the stock market that has some small investors worried. Alan Helfman, general sales manager of a Chrysler dealership in Houston, said he and his mother have some joint stock investments, but the overall economy is his chief worry.

"These high rollers took a big bath today," he said in his showroom, which is within a few miles of the multi-million dollar homes of some of Houston's richest citizens. "And I can tell you that a high roller isn't going to come in tomorrow and buy a Chrysler TC by Maserati." And, finally, there were the gloaters. "I got out in 1987. Everything," said Pascal Antori, an Akron, Ohio, plumbing contractor who was visiting Chicago and stopped by Fidelity Investments' LaSalle Street office. "I just stopped by to see how much I would have lost."

Would Mr. Antori ever get back in? "Are you kidding] When it comes to money: Once bitten, 2,000 times shy."

--- @ Largest Drops of DJIA @ DATE CLOSE DECLINE % CHG. @ Oct. 19, 1987 1738.74 508.00 -22.61% @ Oct. 13, 1989 2569.26 190.58 - 6.91 @ Oct. 26, 1987 1793.98 156.83 - 8.04 @ Jan. 8, 1988 1911.31 140.58 - 6.85 @ Oct. 16, 1987 2246.74 108.35 - 4.60 @ Apr. 14, 1988 2005.64 101.46 - 4.82 @ Oct. 14, 1987 2412.70 95.45 - 3.81 @ Oct. 6, 1987 2548.63 91.55 - 3.47 @ Sept. 11, 1986 1792.89 86.61 - 4.61 @ Oct. 22, 1987 1950.43 77.42 - 3.82 @ Nov. 30, 1987 1833.55 76.93 - 4.03 @ Dec. 3, 1987 1776.53 72.44 - 3.92

The crowded field for notebook-sized computers is about to become a lot more crowded.

Compaq Computer Corp.'s long-awaited entry today into the notebook field is expected to put immediate heat on others in the market, especially Zenith Electronics Corp., the current market leader, and on a swarm of promising start-ups.

Compaq's series of notebooks extends a trend toward downsizing in the personal computer market. One manufacturer already has produced a clipboard-sized computer called a notepad, and two others have introduced even smaller "palmtops."

But those machines are still considered novelties, with keyboards only a munchkin could love and screens to match. Compaq's notebooks, by contrast, may be the first in their weight class not to skimp on features found in much bigger machines. Analysts say they're faster and carry more memory than anything else of their size on the market -- and they're priced aggressively at $2,400 to $5,000. All of this comes in a machine that weighs only six pounds and fits comfortably into most briefcases.

In recent months, Compaq's competition, including Zenith, Toshiba Corp., Tandy Corp. and NEC Corp. all have introduced portables that weigh approximately the same and that are called notebooks -- perhaps misleadingly. One analyst, noting that most such machines are about two inches thick, takes exception to the name. "This isn't quite a notebook -- I call it a phonebook," he says.

That can't be said of the $2,400 notepad computer introduced a few weeks ago by GRiD Systems Corp., a unit of Tandy. Instead of a keyboard, it features a writing surface, an electronic pen and the ability to "read" block printing. At 4 1/2 pounds, it may be too ambitiously named, but it nevertheless opens up the kind of marketing possibilities that make analysts froth.

Palmtops aren't far behind. Atari Corp.'s Portfolio, introduced in Europe two months ago and in the U.S. in early September, weighs less than a pound, costs a mere $400 and runs on three AA batteries, yet has the power to run some spreadsheets and word processing programs. Some critics, however, say its ability to run commonplace programs is restricted by a limited memory.

Poquet Computer Corp., meanwhile, has introduced a much more sophisticated palmtop that can run Lotus 1-2-3 and other sophisticated software programs, but costs five times as much.

At stake is what Mike Swavely, Compaq's president of North America operations, calls "the Holy Grail of the computer industry" -- the search for "a real computer in a package so small you can take it everywhere." The market is so new, nobody knows yet how big it can be. "I've had a lot of people trying to sell me services to find out how big it is," says Tom Humphries, director of marketing for GRiD. "Whether it's $5 billion or $3.5 billion, it doesn't matter. It's huge."

Consider the growth of portables, which now comprise 12% of all personal computer sales. Laptops -- generally anything under 15 pounds -- have become the fastest-growing personal computer segment, with sales doubling this year.

Responding to that demand, however, has led to a variety of compromises. Making computers smaller often means sacrificing memory. It also has precluded use of the faster, more powerful microprocessors found in increasing numbers of desktop machines. Size and weight considerations also have limited screen displays.

The competitive sniping can get pretty petty at times. A Poquet spokesman, for example, criticizes the Atari Portfolio because it requires three batteries while the Poquet needs only two. Both palmtops are dismissed by notebook makers, who argue that they're too small -- a problem Poquet also encountered in focus groups, admits Gerry Purdy, director of marketing. Poquet, trying to avoid the "gadget" label, responded with the tag line, "The Poquet PC -- a Very Big Computer."

Despite the sniping, few question the inevitability of the move to small machines that don't make compromises. Toward that end, experts say the real battle will take place between center-stage players like Toshiba, Zenith and now Compaq.

Compaq's new machines are considered a direct threat to start-up firms like Dynabook Inc., which introduced in June a computer that, like Compaq's, uses an Intel 286 microprocessor and has a hard disk drive. But the Dynabook product is twice as heavy and costs more than Compaq's.

Compaq's announcement also spells trouble for Zenith, which last year had 28% of the U.S. laptop market but recently agreed to sell its computer business to Cie. des Machines Bull, the French government-owned computer maker. Zenith holders will vote in December on the proposed $635 million sale, a price that could slip because it is pegged to Zenith's share and sales.

Compaq is already taking aim at Zenith's market share. Rod Canion, Compaq's president and chief executive officer, notes pointedly that Zenith's $2,000 MinisPort uses an "unconventional" two-inch floppy disk, whereas Compaq's new machines use the more common 3 1/2-inch disk. John P. Frank, president of Zenith Data Systems, simply shrugs off such criticism, noting that 3 1/2-inch floppies were also "unconventional" when they first replaced five-inch disks. "We don't look at it as not being a standard, we look at it as a new standard," he argues.

Analysts don't see it that way. "I can't imagine that you'll talk to anyone who won't tell you this is dynamite for Compaq and a stopper for everyone else," says Gene Talsky, president of Professional Marketing Management Inc. Adds Bill Lempesis, senior industry analyst for DataQuest, a high-technology market research firm: "We basically think that these are very hot products. The problem Compaq is going to have is that they won't be able to make enough of them."

Compaq's machines include the 3 1/2-inch floppy disk drive, a backlit screen that is only 1/4-inch thick and an internal expansion slot for a modem -- in other words, almost all the capabilities of a typical office machine.

Others undoubtedly will follow, but most analysts believe Compaq has at least a six-month lead on the competition. Toshiba's line of portables, for example, features the T-1000, which is in the same weight class but is much slower and has less memory, and the T-1600, which also uses a 286 microprocessor, but which weighs almost twice as much and is three times the size. A third model, marketed in Japan, may hit the U.S. by the end of the first quarter of 1990, but by then, analysts say, Compaq will have established itself as one of three major players.

What about Big Blue? International Business Machines Corp., analysts say, has been burned twice in trying to enter the laptop market and shows no signs of trying to get into notebooks anytime soon.

Honeywell Inc. and International Business Machines Corp. received Air Force contracts to develop integrated circuits for use in space.

Honeywell's contract totaled $69.7 million, and IBM's $68.8 million.

Boeing Co. received a $46.7 million Air Force contract for developing cable systems for the Minuteman Missile.

General Dynamics Corp. received a $29 million Air Force contract for electronic-warfare training sets.

Grumman Corp. received an $18.1 million Navy contract to upgrade aircraft electronics.

Avco Corp. received an $11.8 million Army contract for helicopter engines.

Sharp increases in the price of fresh produce caused Spain's September consumer price index to shoot up 1.1% from the previous month, pushing the annual rate of inflation to 6.8%, the National Institute of Statistics said Friday.

The monthly increase is the highest recorded in the past four years.

The index, which registered 156.8 at the end of September, has a base of 100 set in 1983 and isn't seasonally adjusted.

Prices have risen 5.9% in the first nine months of the year, outstripping both the initial 3% inflation goal set by the government of Socialist Prime Minister Felipe Gonzalez and the second, revised goal of 5.8%.

Japan's wholesale prices in September rose 3.3% from a year earlier and were up 0.4% from the previous month, the Bank of Japan announced Friday.

The wholesale price index stood at 90.1, compared with a 1985 base of 100.

Plunge? What plunge?

Twenty-four New York Stock Exchange issues hit 52-week highs during Friday's trading, despite the Dow Jones Industrial Average's 190.58-point plunge.

Stocks of utilities held up relatively better than other market sectors during the sell-off. And among the issues hitting new highs were Detroit Edison Co. and Niagara Mohawk Power Corp. Other major issues hitting highs included American Telephone & Telegraph Co., Westinghouse Electric Corp., Exxon Corp. and Cigna Corp., the big insurer.

Of course, many more issues -- 93 -- hit new lows. These included International Business Machines Corp., which during Friday's session traded below $100 a share for the first time since June 1984. IBM closed at $102, down $5.625. Other new lows included Navistar International Corp., Union Carbide Corp. and Bethlehem Steel Corp., all of which are included in the industrial average.

Meanwhile, two initial public offerings braved the cascading market in their maiden day of national over-the-counter trading Friday. Shares of Rally's Inc., an operator of fast-food restaurants, closed at $17 each, up from its $15 offering price and shares of Employee Benefit Plans Inc., a health-care consultant, closed at $14.125, up from its $12 offering price.

Ford Motor Co. said it acquired 5% of the shares in Jaguar PLC. Jaguar, the London Stock Exchange and the U.S. Securities and Exchange Commission are being notified of the transactions, the company said.

The U.S. Federal Trade Commission advised Ford last week that it wouldn't raise any objection to the acquisition of as much as 15% of Jaguar shares.

The No. 2 auto maker disclosed last month that it wants to buy as much as 15% of the British luxury-car maker, the maximum allowed under current United Kingdom government restrictions. General Motors Corp. said it had discussed the possibility of a joint venture with Jaguar before Ford began buying shares. GM said it still is talking with Jaguar about acquiring a minority interest.

Investors who bought stock with borrowed money -- that is, "on margin" -- may be more worried than most following Friday's market drop.

That's because their brokers can require them to sell some shares or put up more cash to enhance the collateral backing their loans. In October 1987, these margin calls were thought to have contributed to the downward spiral of the stock market.

Typically, a margin call occurs when the price of a stock falls below 75% of its original value. If the investor doesn't put up the extra cash to satisfy the call, the brokerage firm may begin liquidating the securities.

But some big brokerage firms said they don't expect major problems as a result of margin calls. Margin calls since Friday "have been higher than usual, but reasonable," a spokesman for Shearson Lehman Hutton Inc. said.

Merrill Lynch & Co. officials "don't expect {margin calls} to be as big a factor as in 1987" because fewer individual investors are buying stock on margin, a spokesman said.

Hugo Quackenbush, senior vice president at Charles Schwab Corp., the San Francisco-based discount brokerage firm, said he didn't expect any immediate problems with margin calls for Schwab customers. He said Schwab had increased margin requirements "so customers have more of a cushion." He added: "We learned a lesson in 1987 about volatility."

Avis Inc., following rival Hertz Corp.'s lead, said it is backing out of frequent-flier programs with three airlines.

The Garden City, N.Y., car-rental company said it won't renew contracts with NWA Inc.'s Northwest Airlines unit, Pan Am Corp.'s Pan American World Airways unit and Midway Airlines at the end of this year. But it remains involved in programs with AMR Corp.'s American Airlines unit and Delta Air Lines.

Industry estimates put Avis's annual cost of all five programs at between $8 million and $14 million. A spokesman for Avis wouldn't specify the costs but said the three airlines being dropped account for "far less than half" of the total.

Budget Rent a Car Corp., of Chicago, and National Car Rental Systems Inc., of Minneapolis, both said they had no plans to follow suit. In fact, Budget indicated it saw some benefit to staying involved in these programs, in which renters earn frequent-flier miles and fliers can get car-rental discounts.

"I cannot see how this news by Hertz and Avis cannot benefit Budget's programs," said Bob Wilson, Budget's vice president, marketing planning. Northwest and Midway are two of the five airlines with which Budget has agreements.

National also participates in the Northwest frequent-flier program along with four other airlines, including Delta and USAir Group Inc.'s USAir unit.

A month ago, Hertz, of Park Ridge, N.J., said that it would drop its marketing agreements at year end with Delta, America West and Texas Air Corp.'s Continental Airlines and Eastern Airlines, and that pacts with American Airlines, UAL Inc's United Airlines and USAir also would be ended. . . sometime after Dec. 31. At the time, Hertz said its annual fees to those airlines amounted to $20 million and that the value of redeemed awards topped $15 million. Analysts and competitors, however, doubt the numbers were that high. Budget said its frequent-flier costs are "substantially below" Avis's level.

Robert D. Cardillo, Avis vice president of marketing, said, "The proliferation and costs attached to {frequent-flier programs} have significantly diminished their value."

This year has been difficult for both Hertz and Avis, said Charles Finnie, car-rental industry analyst at Alex. Brown & Sons. "They've been looking to get their costs down, and this is a fairly sensible way to do it," he said.

CBS Inc. is cutting "The Pat Sajak Show" down to one hour from its current 90 minutes.

CBS insisted the move wasn't a setback for the program, which is the network's first entry into the late-night talk show format since 1972.

"I have every intention of making this the best possible show and having it run one hour is the best way to it," said Rod Perth, who was named vice president of late night entertainment in August. "This will raise the energy level of the show."

CBS will continue to program action-adventure shows to follow the Sajak hour. But CBS News will extend its four-hour "Nightwatch" by 30 minutes and begin at 1:30 a.m.

The show, despite a promising start, has slipped badly in the weekly ratings as compiled by A.C. Nielsen Co., finishing far below "Tonight" on NBC, a unit of General Electric Co., and "Nightline" on ABC-TV, a unit of Capital Cities/ABC Inc. Further fractioning the late-night audience is the addition of the "Arsenio Hall Show," syndicated by Paramount Communications Inc.

Tandem Computers Inc., preparing to fight with International Business Machines Corp. for a piece of the mainframe business, said it expects to post higher revenue and earnings for its fiscal fourth quarter ended Sept. 30.

Tandem said it expects to report revenue of about $450 million and earnings of 35 cents to 40 cents a share. The results, which are in line with analysts' estimates, reflect "a continued improvement in our U.S. business," said James Treybig, Tandem's chief executive officer.

In the year-earlier period, Tandem reported net income of $30.1 million, or 31 cents a share, on revenue of $383.9 million.

Tandem expects to report the full results for the quarter next week. Analysts have predicted that the Cupertino, Calif., company will report revenue of $430 million to $460 million and earnings of 35 cents to 40 cents a share.

Commenting on the results for the quarter, Mr. Treybig said the strength of the company's domestic business came as "a surprise" to him, noting that sales "in every region of the U.S. exceeded our plan."

The company's U.S. performance was helped by "a record quarter for new customers," he said.

Tandem makes "fault-tolerant" computers -- machines with built-in backup systems -- that run stock exchanges, networks of automatic tellers and other complex computer systems. Tomorrow the company is scheduled to announce its most powerful computer ever, which for the first time will bring it into direct competition with makers of mainframe computers.

Tandem's new high-end computer is called Cyclone. Prices for the machine, which can come in various configurations, are $2 million to $10 million.

Analysts expect the new computer to wrest a hefty slice of business away from IBM, the longtime leader in mainframes.

"We believe they could siphon perhaps two to three billion dollars from IBM" over the next few years, said George Weiss, an analyst at the Gartner group. That will spur Tandem's growth. "I'd be disappointed if the company grew by less than 20% next year," said John Levinson, an analyst at Goldman, Sachs & Co.

IBM is expected to respond to Tandem's Cyclone by discounting its own mainframes, which analysts say are roughly three times the price of a comparable system from Tandem. "Obviously IBM can give bigger discounts to users immediately," said Mr. Weiss.

But Mr. Treybig questions whether that will be enough to stop Tandem's first mainframe from taking on some of the functions that large organizations previously sought from Big Blue's machines. "The answer isn't price reductions, but new systems," he said.

Nevertheless, Tandem faces a variety of challenges, the biggest being that customers generally view the company's computers as complementary to IBM's mainframes. Even Mr. Treybig is reluctant to abandon this notion, insisting that Tandem's new machines aren't replacements for IBM's mainframes.

"We're after a little bigger niche," he said.

Don't jump yet. The stock market's swoon may turn out to be good news for the economy.

In one wild hour of trading, the market managed to accomplish what the Bush administration has been trying to do, unsuccessfully, for weeks. It is forcing the Federal Reserve to ease its grip on credit and it took the wind out of a previously irrepressible dollar. The resulting decline in interest rates and the value of the dollar could reinvigorate American business -- indeed, the entire economy.

This may sound strangely optimistic. After all, until a few years ago, the stock market was viewed as a barometer of the national economy. When it went down, by all tradition, the economy followed.

That has changed, partly because the two years following the worst stock-market plunge in history have been reasonably comfortable. The 1987 crash was "a false alarm however you view it," says University of Chicago economist Victor Zarnowitz.

The market seems increasingly disconnected from the rest of the nation. Its spasms can't be traced to fundamental business conditions, nor do they appear to presage major shifts in the economy. "The market today has a life of its own," John Akers, chairman of International Business Machines Corp., said Saturday. "There's nothing rational about this kind of action."

Of course, the health of the economy will be threatened if the market continues to dive this week. Sharply falling stock prices do reduce consumer wealth, damage business confidence and discourage the foreign investors upon whom the U.S. now relies for financial sustenance. The financial-services industry was battered by the 1987 crash. What's more, although the stock market is far less overvalued today than two years ago, the U.S. economy is weaker. Growth is slower. Profits are softer. Debt burdens are heavier.

But if the stock market doesn't continue to plummet, the beneficial effects of lower interest rates and a lower dollar may well dominate. The Fed, which until Friday had been resisting moves to ease credit, is now poised to pour money into the economy if needed to soothe the markets. Fed officials may protest that this doesn't necessarily mean a fundamental change in their interest-rate policies. But the experience of the 1987 crash suggests the Fed is likely to bring down short-term interest rates in its effort to calm markets.

Anticipating the Fed's move, money traders lowered a key interest rate known as the Federal Funds rate to 8.625% late Friday, down from 8.820% the day before. Tiny movements in the rate, which is what banks charge each other for overnight loans, are usually among the few visible tracks that the Fed leaves on the monetary markets.

The dollar also began to decline Friday as the stock market's plunge caused some investors to reassess their desire to invest in the U.S. Treasury officials have been arguing for months that the dollar's strength was out of whack with economic fundamentals, threatening to extinguish the export boom that has sustained manufacturers for several years. The market drop has now apparently convinced foreign investors that the Treasury was right about the overpriced dollar.

A modest drop in the dollar -- only a modest one, mind you -- would be welcomed by the U.S. That wasn't the case in 1987, when the dollar was so weak that some economists and government officials seriously worried that it might collapse, producing panic among foreign investors and diminishing the flow of foreign capital to the U.S.

Another big difference between 1987 and 1989 isn't so comforting. In the third quarter of 1987, the economy spurted at an inflation-adjusted annual rate of 5.3%. The consensus among economists is that it grew a much more sluggish 2.3% in the third quarter of 1989, which ended two weeks ago.

The plunge in stock prices "is happening at a time when the economy has already slowed down," says economist Lawrence Chimerine of WEFA Group, a Bala Cynwyd, Pa., forecasting company. "A lot of pent-up demand is gone."

Consumer spending did drop in the months following Black Monday 1987 -- "but only slightly and for a short period of time," recalls Mr. Zarnowitz, a longtime student of business cycles. "That was offset by strength elsewhere. {The effects} were much less severe and less prolonged than some had feared or expected." Today, he frets, exports and business investment spending may be insufficient to pick up the slack if stock prices sink this week and if consumers retrench in reaction.

What's more, the corporate borrowing binge hasn't abated in the past two years. "We've had two more years of significant accumulation of debt . . . just at the time when earnings are being squeezed," Mr. Chimerine notes. The more a company relies on borrowed money, the greater its sensitivity to an economic slowdown. A company with a strong balance sheet can withstand an unanticipated storm; a highly leveraged company may end up in bankruptcy court.

The Fed, of course, knows that very well -- hence its readiness to pump credit into the economy this morning. But, in the process, the Fed risks reigniting inflation. Even before Friday's events, Harvard University economist Benjamin Friedman was arguing that the Fed won't be able to live up to its tough words on eliminating inflation because of its responsibility to protect fragile financial markets, banks and highly leveraged corporations. The biggest threat on the economic horizon right now isn't recession, he reasons; it's an outbreak of uncontrolled inflation.

In the end, the 1987 collapse suggested, the economy doesn't move in lockstep with stock prices. The economy does, however, depend on the confidence of businesses, consumers and foreign investors. A panic on Wall Street doesn't exactly inspire confidence.

Surveys suggested that consumer confidence was high before Friday. A 190-point drop isn't likely to make much of a dent; multiply that a few times over, though, and it will. If the reactions of executives gathered Saturday at Hot Springs, Va., for the Business Council meetings are typical, business leaders weren't overly rattled by Friday's decline. And if foreign investors become a tad more cautious -- well, the dollar's recent strength suggests that the U.S. can stand it.

On the bottom line, the most comforting fact for the economic outlook is that we've been through this before. Two years ago, about the only point of comparison was the 1929 crash and the subsequent Depression. The doomsayers had a receptive audience. The prosperity that followed Black Monday permits a more optimistic view today.

At the very least, the establishment here is taking comfort from the nation's success in handling the last go-around. As Sen. Lloyd Bentsen (D., Texas) observed yesterday, "The Fed avoided a meltdown last time. They are more sophisticated this time."

The chemical industry is expected to report that profits eroded in the third quarter because of skidding prices in the commodity end of the business.

Producers of commodity chemicals, the basic chemicals produced in huge volumes for other manufacturers, have seen sharp inventory cutting by buyers. Once the chief beneficiaries of the industry's now fading boom, these producers also will be reporting against exceptionally strong performances in the 1988 third quarter.

"For some of these companies, this will be the first quarter with year-to-year negative comparisons," says Leonard Bogner, a chemical industry analyst at Prudential Bache Research. "This could be the first of five or six down quarters."

Perhaps most prominent, Dow Chemical Co., which as of midyear had racked up eight consecutive record quarters, is expected to report that profit decreased in the latest quarter from a year earlier, if only by a shade. Though Dow has aggressively diversified into specialty chemicals and pharmaceuticals, the company still has a big stake in polyethylene, which is used in packaging and housewares.

Analysts' third-quarter estimates for the Midland, Mich., company are between $3.20 a share and $3.30 a share, compared with $3.36 a year ago, when profit was $632 million on sales of $4.15 billion. A Dow spokeswoman declined to comment on the estimates.

At the investment firm of Smith Barney, Harris Upham & Co., the commodity-chemical segment is seen pulling down overall profit for 20 companies representative of the whole industry by 8% to 10%. "You will find the commodities off more than the others and the diversified companies about even or slightly better," says James Wilbur, a Smith Barney analyst.

First Boston Corp. projects that 10 of the 15 companies it follows will report lower profit. Most of the 10 have big commodity-chemical operations.

Still, some industry giants are expected to report continuing gains, largely because so much of their business is outside commodity chemicals. Du Pont Co. is thought to have had steady profit growth in white pigments, fibers and polymers. Moreover, the Wilmington, Del., company is helped when prices weaken on the commodity chemicals it buys for its own production needs, such as ethylene.

Analysts are divided over whether Du Pont will report much of a gain in the latest quarter from its Conoco Inc. oil company. The estimates for Du Pont range from $2.25 to $2.45 a share. In the 1988 third quarter, the company earned $461 million, or $1.91 a share, on sales of $7.99 billion. Du Pont declined to comment.

Monsanto Co., too, is expected to continue reporting higher profit, even though its sales of crop chemicals were hurt in the latest quarter by drought in northern Europe and the western U.S. The St. Louis-based company is expected to report again that losses in its G.D. Searle & Co. pharmaceutical business are narrowing. Searle continued to operate in the red through the first half of the year, but Monsanto has said it expects Searle to post a profit for all of 1989.

Most estimates for Monsanto run between $1.70 and $2 a share. A year ago, the company posted third-quarter profit of $116 million, or $1.67 a share, on sales of $2.02 billion. Monsanto declined to comment.

But the commodity-chemical producers are caught on the downside of a pricing cycle. By some accounts on Wall Street and in the industry, the inventory reductions are near an end, which may presage firmer demand. But doubters say growing production capacity could keep pressure on prices into the early 1990s.

In the latest quarter, at least, profit is expected to fall sharply. For Himont Inc., "how far down it is, we don't know," says Leslie Ravitz at Salomon Brothers. The projections are in the neighborhood of 50 cents a share to 75 cents, compared with a restated $1.65 a share a year earlier, when profit was $107.8 million on sales of $435.5 million.

Himont faces lower prices for its mainstay product, polypropylene, while it goes forward with a heavy capital investment program to bolster its raw material supply and develop new uses for polypropylene, whose markets include the packaging and automobile industries. The company, based in Wilmington, Del., is 81%-owned by Montedison S.p.A., Milan, which has an offer outstanding for the Himont shares it doesn't already own.

At Quantum Chemical Corp., New York, the trouble is lower prices for polyethylene, higher debt costs and the idling of an important plant due to an explosion. Some analysts hedge their estimates for Quantum, because it isn't known when the company will book certain one-time charges. But the estimates range from break-even to 35 cents a share. In the 1988 third quarter, Quantum earned $99.8 million, or $3.92 a share, on sales of $724.4 million.

Another big polyethylene producer, Union Carbide Corp., is expected to post profit of between $1 a share and $1.25, compared with $1.56 a share a year earlier, when the company earned $213 million on sales of $2.11 billion.

Himont, Quantum and Union Carbide all declined to comment.

The following were among Friday's offerings and pricings in the U.S. and non-U.S. capital markets, with terms and syndicate manager, as compiled by Dow Jones Capital Markets Report: @ CORPORATES

Dow Chemical Co. -- $150 million of 8.55% senior notes due Oct. 15, 2009, priced at par. The issue, which is puttable back to the company at par on Oct. 15, 1999, was priced at a spread of 50 basis points above the Treasury's 10-year note. Rated single-A-1 by Moody's Investors Service Inc. and single-A by Standard & Poor's Corp., the non-callable issue will be sold through underwriters led by Merrill Lynch Capital Markets.

Centel Capital Corp. -- $150 million of 9% debentures due Oct. 15, 2019, priced at 99.943 to yield 9.008%. The non-callable issue, which can be put back to the company in 1999, was priced at 99 basis points above the Treasury's 10-year note. Rated Baa-1 by Moody's and triple-B-plus by S&P, the issue will be sold through underwriters led by Morgan Stanley & Co. @ MORTGAGES

Federal Home Loan Mortgage Corp. -- $500 million of Remic mortgage securities offered in 13 classes by Prudential-Bache Securities Inc. The offering, Series 102, backed by Freddie Mac 8 1/2% securities with a weighted average remaining term to maturity of 28.4 years, was priced before the market's afternoon surge. Among classes for which details were available, yields ranged from 8.78%, or 75 basis points over two-year Treasury securities, to 10.05%, or 200 basis points over 10-year Treasurys.

Federal Home Loan Mortgage Corp. -- $300 million of Remic mortgage securities offered by Citicorp Securities Markets Inc. The offering, Series 101, is backed by Freddie Mac 9 1/2% securities. Pricing details weren't immediately available.

Federal Home Loan Mortgage Corp. -- $200 million of stripped mortgage securities underwritten by BT Securities Corp. The agency's first strips issue, collateralized by Freddie Mac 8% securities pooled into a single security called a Giant, will be divided into interest-only and principal-only securities. The collateral is being sold by a thrift institution. The principal-only securities will be repackaged by BT Securities into a Freddie Mac Remic, Series 103, that will have six classes. The interest-only securities will be sold separately by BT Securities. The principal-only securities pay the principal from the underlying Freddie Mac 8% securities, while the interest-only securities pay only interest. Freddie Mac said the principal-only securities were priced at 58 1/4 to yield 8.45%, assuming an average life of eight years and a prepayment of 160% of the PSA model. The interest-only securities were priced at 35 1/2 to yield 10.72%. @ EUROBONDS

There were no major Eurobond or foreign bond offerings in Europe Friday.

The economy's temperature will be taken from several vantage points this week, with readings on trade, output, housing and inflation.

The most troublesome report may be the August merchandise trade deficit due out tomorrow. The trade gap is expected to widen to about $9 billion from July's $7.6 billion, according to a survey by MMS International, a unit of McGraw-Hill Inc., New York.

Thursday's report on the September consumer price index is expected to rise, although not as sharply as the 0.9% gain reported Friday in the producer price index. That gain was being cited as a reason the stock market was down early in Friday's session, before it got started on its reckless 190-point plunge.

Economists are divided as to how much manufacturing strength they expect to see in September reports on industrial production and capacity utilization, also due tomorrow. Meanwhile, September housing starts, due Wednesday, are thought to have inched upward.

"There's a possibility of a surprise" in the trade report, said Michael Englund, director of research at MMS. A widening of the deficit, if it were combined with a stubbornly strong dollar, would exacerbate trade problems -- but the dollar weakened Friday as stocks plummeted.

In any event, Mr. Englund and many others say that the easy gains in narrowing the trade gap have already been made. "Trade is definitely going to be more politically sensitive over the next six or seven months as improvement begins to slow," he said.

Exports are thought to have risen strongly in August, but probably not enough to offset the jump in imports, economists said.

Views on manufacturing strength are split between economists who read September's low level of factory job growth as a sign of a slowdown and those who use the somewhat more comforting total employment figures in their calculations. The wide range of estimates for the industrial output number underscores the differences: The forecasts run from a drop of 0.5% to an increase of 0.4%, according to MMS.

A rebound in energy prices, which helped push up the producer price index, is expected to do the same in the consumer price report. The consensus view expects a 0.4% increase in the September CPI after a flat reading in August.

Robert H. Chandross, an economist for Lloyd's Bank in New York, is among those expecting a more moderate gain in the CPI than in prices at the producer level. "Auto prices had a big effect in the PPI, and at the CPI level they won't," he said.

Food prices are expected to be unchanged, but energy costs jumped as much as 4%, said Gary Ciminero, economist at Fleet/Norstar Financial Group. He also says he thinks "core inflation," which excludes the volatile food and energy prices, was strong last month. He expects a gain of as much as 0.5% in core inflation after a summer of far smaller increases.

Housing starts are expected to quicken a bit from August's annual pace of 1,350,000 units. Economists say an August rebound in permits for multifamily units signaled an increase in September starts, though activity remains fairly modest by historical standards.

--- @ Closely Watched Reports @ Statistics Released in the Week Ended Oct. 13 @ CHANGE @ (from prior @ TOTAL period) @ Money supply @ M1 Week ended @ Oct. 2 (in billions) $789.3 + $6.8 @ M2 Week ended @ Oct. 2 (in billions) $3,165.7 + $6.0 @ M3 Week ended @ Oct. 2 (in billions) $4,005.2 - $0.8 @ New jobless claims @ Week ended Sept. 30 333,000 + 5,000 @ Producer price index @ September 113.5% + 0.9% @ Retail sales @ September $145.21 + 0.5% @ Auto sales @ Early Oct. total @ vs. year ago 160,510 -12.6% @ Statistics to Be Released This Week @ Business inventories (Mon.) @ August @ Trade deficit (Tues.) @ August @ Industry production (Tues.) @ September @ Capacity utilization (Tues.) @ September @ Housing starts (Wed.) @ September @ Money supply (Thurs.) @ Consumer price index (Thurs.) @ September @ New jobless claims (Thurs.)

Two-Way Street

If the sixty-day plant-closing law's fair,

Why should we not then amend the writ

To require that all employees give

Similar notice before they quit?

-- Rollin S. Trexler.

---

Candid Comment

When research projects are curtailed due to government funding cuts, are we "caught with our grants down"?

-- C.E. Friedman.

Assuming the stock market doesn't crash again and completely discredit yuppies and trading rooms, American television audiences in a few months may be seeing Britain's concept of both. "Capital City" is a weekly series that premiered here three weeks ago amid unprecedented hype by its producer, Thames Television.

The early episodes make you long for a rerun of the crash of 1987. Let's make that 1929, just to be sure.

According to the program's publicity prospectus, "Capital City," set at Shane Longman, a fictional mid-sized securities firm with #500 million capital, "follows the fortunes of a close-knit team of young, high-flying dealers, hired for their particular blend of style, genius and energy. But with all the money and glamour of high finance come the relentless pressures to do well; pressure to pull off another million before lunch; pressure to anticipate the market by a fraction of a second . . ."

You needn't be a high-powered securities lawyer to realize the prospectus is guilty of less than full disclosure. The slickly produced series has been criticized by London's financial cognoscenti as inaccurate in detail, but its major weakness is its unrealistic depiction of the characters' professional and private lives.

Turned loose in Shane Longman's trading room, the yuppie dealers do little right. Judging by the money lost and mistakes made in the early episodes, Shane Longman's capital should be just about exhausted by the final 13th week.

In the opening episode we learn that Michelle, a junior bond trader, has indeed pulled off another million before lunch. Trouble is, she has lost it just as quickly. Rather than keep the loss a secret from the outside world, Michelle blabs about it to a sandwich man while ordering lunch over the phone.

Little chance that Shane Longman is going to recoup today. Traders spend the morning frantically selling bonds, in the belief that the U.S. monthly trade figures will look lousy. Ah, perfidious Columbia] The trade figures turn out well, and all those recently unloaded bonds spurt in price. So much for anticipating the market by a fraction of a second. And a large slice of the first episode is devoted to efforts to get rid of some nearly worthless Japanese bonds (since when is anything Japanese nearly worthless nowadays?). Surprisingly, Shane Longman survives the week, only to have a senior executive innocently bumble his way into becoming the target of a criminal insider trading investigation. Instead of closing ranks to protect the firm's reputation, the executive's internal rivals, led by a loutish American, demand his resignation. The plot is thwarted when the firm's major stockholder, kelp farming on the other side of the globe, hurries home to support the executive. But the investigation continues.

If you can swallow the premise that the rewards for such ineptitude are six-figure salaries, you still are left puzzled, because few of the yuppies consume very conspicuously. In fact, few consume much of anything. Two share a house almost devoid of furniture. Michelle lives in a hotel room, and although she drives a canary-colored Porsche, she hasn't time to clean or repair it; the beat-up vehicle can be started only with a huge pair of pliers because the ignition key has broken off in the lock. And it takes Declan, the obligatory ladies' man of the cast, until the third episode to get past first base with any of his prey.

Perhaps the explanation for these anomalies is that class-conscious Britain isn't ready to come to terms with the wealth created by the Thatcherian free-enterprise regime. After all, this isn't old money, but new money, and in many cases, young money.

This attitude is clearly illustrated in the treatment of Max, the trading room's most flamboyant character. Yuppily enough, he lives in a lavishly furnished converted church, wears designer clothes and drives an antique car. But apparently to make him palatable, even lovable, to the masses, the script inflates pony-tailed Max into an eccentric genius, master of 11 Chinese dialects. He takes his wash to the laundromat, where he meets a punky French girl who dupes him into providing a home for her pet piranha and then promptly steals his car and dumps it in Dieppe.

In producing and promoting "Capital City," Thames has spent about as much as Shane Longman loses on a good day. The production costs are a not inconsiderable #8 million ($12.4 million), and would have been much higher had not the cost of the trading floor set been absorbed in the budget of "Dealers," an earlier made-for-TV movie. Another half million quid went for a volley of full-page advertisements in six major British newspapers and for huge posters in the London subway.

These expenses create a special incentive for "Capital City's" producers to flog it, or a Yank-oriented version of it, in America. Thames's U.S. marketing agent, Donald Taffner, is preparing to do just that. He is discreetly hopeful, citing three U.S. comedy series -- "Three's Company," "Too Close for Comfort" and "Check It Out" -- that had British antecedents.

Perhaps without realizing it, Mr. Taffner simultaneously has put his finger on the problem and an ideal solution: "Capital City" should have been a comedy, a worthy sequel to the screwball British "Carry On" movies of the 1960s.

The seeds already are in the script. The first episode concluded with a marvelously cute scene in which the trading-room crew minded a baby, the casualty of a broken marriage at the firm. And many in the young cast bear striking resemblances to American TV and movie personalities known for light roles. Joanna Kanska looks like a young Zsa Zsa Gabor; William Armstrong, who plays Max, could pass for Hans Conreid, and Douglas Hodge (Declan) for James Farentino; Rolf Saxon is a passable Tommy Noonan and Dorian Healy could easily double for Huntz Hall, the blank-faced foil of the Bowery Boys comedies.

So, OK kids, everybody on stage for "Carry On Trading": The cast is frantically searching the office for misplaced Japanese bonds that suddenly have soared in value because Dai-Ichi Kangyo Bank has just bought the White House. The pressure is too much for Zsa Zsa, who slaps a security guard. He backflips into a desktop computer terminal, which explodes, covering Huntz Hall's face with microchips. And all the while, the bonds are in the baby's diaper.

It should run forever.

---

Mr. Rustin is senior correspondent in the Journal's London bureau.

Axa-Midi Assurances of France gave details of its financing plans for its proposed $4.5 billion acquisition of Farmers Group Inc., in amended filings with insurance regulators in the nine U.S. states where Farmers operates.

The proposed acquisition is part of Sir James Goldsmith's unfriendly takeover attempt for B.A.T Industries PLC, the British tobacco, retailing, paper and financial services concern that is parent of Los Angeles-based Farmers. In an attempt to appease U.S. regulators' concern over a Goldsmith acquisition of Farmers, Sir James in August agreed to sell Farmers to Axa if he is successful in acquiring B.A.T.

As part of the agreement, Axa agreed to invest $1 billion in Hoylake Investments Ltd., Sir James's acquisition vehicle.

Of the total $5.5 billion to be paid to Hoylake by Axa, about $1 billion will come from available resources of Axa's parent, Axa-Midi Group, $2.25 billion will be in the form of notes issued by Axa, and the remaining $2.25 billion will be in long-term bank loans.

In an interview Thursday, Claude Bebear, chairman and chief executive officer of Axa, said his group has already obtained assurances from a group of banks led by Cie. Financiere de Paribas that they can provide the loan portion of the financing. The other banking companies in the group are Credit Lyonnais, Societe Generale, BankAmerica Corp. and Citicorp, he said.

Mr. Bebear said Axa-Midi Group has "more than $2.5 billion of non-strategic assets that we can and will sell" to help pay off debt from the acquisition. He said the assets to be sold would be "non-insurance" assets, including a beer company and a real estate firm, and wouldn't include any pieces of Farmers. "We won't put any burden on Farmers," he said.

The amended filings also point out that under a new agreement, Hoylake has an absolute obligation to sell Farmers to Axa upon an acquisition of B.A.T. "We hope that with what we did, the regulators will not need to evaluate Hoylake, and they can directly look at the agreement with us, because Hoylake won't be an owner of Farmers at anytime," Mr. Bebear said.

Any change of control in Farmers needs approval of the insurance commissioners in the nine states where Farmers and its related companies are incorporated.

The amended filings were required because of the new agreement between Axa and Hoylake, and to reflect the extension that Sir James received last month under British takeover rules to complete his proposed acquisition. Hoylake dropped its initial #13.35 billion ($20.71 billion) takeover bid after it received the extension, but said it would launch a new bid if and when the propsed sale of Farmers to Axa receives regulatory approval.

A spokesman for B.A.T said of the amended filings that, "It would appear that nothing substantive has changed. The new financing structure is still a very-highly leveraged one, and Axa still plans to take out 75% of Farmers' earnings as dividends to service their debt." That dividend is almost double the 35% currently taken out of Farmers by B.A.T, the spokesman added. "It would have severe implications for Farmers' policy holders."

To fend off Sir James's advances, B.A.T has proposed a sweeping restructuring that would pare it to a tobacco and financial services concern.

Dismal sales at General Motors Corp. dragged the U.S. car and truck market down below year-ago levels in early October, the first sales period of the 1990 model year.

The eight major domestic auto makers sold 160,510 North American-made cars in the first 10 days of October, a 12.6% drop from a year earlier. Domestically built truck sales were down 10.4% to 86,555 pickups, vans and sport utility vehicles.

The heavy use of incentives to clear out 1989 models appears to have taken the steam, at least initially, out of 1990 model sales, which began officially Oct. 1. This appears particularly true at GM, which had strong sales in August and September but saw its early October car and truck results fall 26.3% from last year's unusually high level.

Overall, sales of all domestic-made vehicles fell 11.9% from a year ago. Without GM, overall sales for the other U.S. automakers were roughly flat with 1989 results.

Some of the U.S. auto makers have already adopted incentives on many 1990 models, but they may have to broaden their programs to keep sales up. "We've created a condition where, without incentives, it's a tough market," said Tom Kelly, sales manager for Bill Wink Chevrolet in Dearborn, Mich.

Car sales fell to a seasonally adjusted annual selling rate of 5.8 million vehicles, the lowest since October 1987. The poor performance contrasts with a robust selling rate of almost eight million last month. Furthermore, dealers contacted late last week said they couldn't see any immediate impact on sales of Friday's steep market decline.

GM's domestic car sales dropped 24.3% and its domestic trucks were down an even steeper 28.7% from the same period a year ago. All of the GM divisions except Cadillac showed big declines. Cadillac posted a 3.2% increase despite new competition from Lexus, the fledging luxury-car division of Toyota Motor Corp. Lexus sales weren't available; the cars are imported and Toyota reports their sales only at month-end.

The sales drop for the No. 1 car maker may have been caused in part by the end in September of dealer incentives that GM offered in addition to consumer rebates and low-interest financing, a company spokesman said. Last year, GM had a different program in place that continued rewarding dealers until all the 1989 models had been sold.

Aside from GM, other car makers posted generally mixed results. Ford Motor Co. had a 1.8% drop in domestic car sales but a 2.4% increase in domestic truck sales.

Chrysler Corp. had a 7.5% drop in car sales, echoing its generally slow performance all year. However, sales of trucks, including the company's popular minivans, rose 4.3%.

Honda Motor Co.'s sales of domestically built vehicles plunged 21.7% from a year earlier. Honda's plant in Marysville, Ohio, was gearing up to build 1990 model Accords, a Honda spokesman said. "We're really confident everything will bounce back to normal," he added.

Separately, Chrysler said firm prices on its 1990-model domestic cars and minivans will rise an average of 5% over comparably equipped 1989 models. Firm prices were generally in line with the tentative prices announced earlier this fall. At that time, Chrysler said base prices, which aren't adjusted for equipment changes, would rise between 4% and 9% on most vehicle.

--- @ RETAIL U.S. CAR AND LIGHT TRUCK SALES-a @ 1989 1988 x-% @ Oct 1-10 Oct 1-10 Chg. @GM total vehicles ....... 100,032 135,706 - 26.3 @ Domestic car .......... 68,301 90,183 - 24.3 @ Imported car .......... 2,455 4,434 - 44.6 @ Total car ........... 70,756 94,617 - 25.2 @ Domestic truck ........ 29,235 41,010 - 28.7 @ Imported truck ........ 41 79 - 48.1 @ Total truck ......... 29,276 41,089 - 28.7 @FORD total vehicles ..... 93,564 94,093 - 0.6 @ Domestic car........... 57,355 58,407 - 1.8 @ Imported car .......... 1,817 2,112 - 14.0 @ Total car ........... 59,172 60,519 - 2.2 @ Domestic truck ........ 34,392 33,574 + 2.4 @CHRYSLER total veh....... 46,846 47,876 - 2.2 @ Domestic car .......... 22,721 24,566 - 7.5 @ Imported car .......... 2,856 2,805 + 1.8 @ Total car ........... 25,577 27,371 - 6.6 @ Domestic truck ........ 20,120 19,297 + 4.3 @ Imported truck ........ 1,149 1,208 - 4.9 @ Total truck ......... 21,269 20,505 + 3.7 @NISSAN total vehicles.... 3,052 2,404 + 27.0 @ Domestic car .......... 1,434 1,005 + 42.7 @ Domestic truck ........ 1,618 1,399 + 15.7 @HONDA domestic car....... 6,757 8,630 - 21.7 @TOYOTA domestic car...... 2,591 475 +445.5 @MAZDA domestic car....... 442 386 + 14.5 @MITSUBISHI-c ............ 909 0 d @Total cars............... 167,638 193,003 - 13.1 @ Domestic............... 160,510 183,652 - 12.6 @ Imported............... 7,128 9,351 - 23.8 @Total trucks............. 86,555 96,567 - 10.4 @ Domestic............... 85,365 95,280 - 10.4 @ Imported............... 1,190 1,287 - 7.5 @Total domestic veh....... 245,875 278,932 - 11.9 @Total vehicles .......... 254,193 289,570 - 12.2

a-Totals include only vehicle sales reported in period.

c-Domestic car

d-Percentage change is greater than 999%.

x-There were 8 selling days in the most recent period and 8 a year earlier. Percentage differences based on daily sales rate rather than sales volume.

Antonio L. Savoca, 66 years old, was named president and chief executive officer of the Atlantic Research Corp. subsidiary. Mr. Savoca had been a consultant to the subsidiary's rocket-propulsion operations. Mr. Savoca succeeds William H. Borten, who resigned to pursue personal interests. Sequa makes and repairs jet engines. It also has interests in military electronics and electro-optics, marine transportation and machinery used to make food and beverage cans.

It wasn't so long ago that a radio network funded by the U.S. Congress -- and originally by the Central Intelligence Agency -- was accused by officials here of employing propagandists, imperialists and spies. Now, the network has opened a news bureau in the Hungarian capital.

Employees held an open house to celebrate and even hung out a sign: "Szabad Europa Radio" -- Radio Free Europe.

"I think this is a victory for the radio," says Barnabas de Bueky, a 55-year-old former Hungarian refugee who works in the Munich, West Germany, headquarters as deputy director of the Hungarian service. In fact, the network hopes to set up offices in Warsaw and anywhere else in the East Bloc that will have it.

But the rapid changes brought on by glasnost and open borders are altering the network's life in more ways than one. In fact, Radio Free Europe is in danger of suffering from its success.

While the network currently can operate freely in Budapest, so can others. In addition, competition for listeners is getting tougher in many ways than when broadcasting here was strictly controlled. Instead of being denounced as an evil agent of imperialism, Radio Free Europe is more likely to draw the criticism that its programs are too tame, even boring.

"They have a lot to do these days to compete with Hungarian radio," says Andrew Deak, a computer-science student at the Technical University in Budapest. "The Hungarian {radio} reporters seem better informed and more critical about about what's going on here."

Indeed, Hungary is in the midst of a media explosion. Boys on busy street corners peddle newspapers of every political stripe. Newsstands are packed with a colorful array of magazines. Radio and television are getting livelier and bolder.

The British Broadcasting Corp. and the U.S. State Department's Voice of America broadcast over Hungarian airwaves, though only a few hours a day each in Hungarian. Australian press magnate Rupert Murdoch has bought 50% stakes in two popular and gossipy Hungarian newspapers, while Britain's Robert Maxwell has let it be known here that he is thinking about similar moves.

But Radio Free Europe doesn't plan to fade away. With its mission for free speech and the capitalist way, the network's staff says it still has plenty to do -- in Hungary and in the "Great Eastern Beyond." Radio Free Europe and its sister station for the Soviet Union, Radio Liberty, say they won't cut back their more than 19 hours of daily broadcasts. They are still an important source of news for 60 million listeners in 23 exotic tongues: from Bulgarian and Belorussian to Kazakh and Kirghiz.

The establishment of its first bureau in Warsaw Pact territory shows the depth of some of the changes in Eastern Europe. Months before the decision by the Hungarian Communist Party to rename itself Socialist and try to look more appealing to voters, the country's rulers were trying to look more hospitable. It proved a perfect time for Radio Free Europe to ask for permission to set up office.

Not only did the Hungarian Ministry of Foreign Affairs approve Radio Free Europe's new location, but the Ministry of Telecommunications did something even more amazing: "They found us four phone lines in central Budapest," says Geza Szocs, a Radio Free Europe correspondent who helped organize the Budapest location. "That is a miracle."

It's a far cry from the previous treatment of the network, which had to overcome jamming of its frequencies and intimidation of local correspondents (who filed reports to the network by phone, secret messengers or letters). In fact, some of the network's Hungarian listeners say they owe Radio Free Europe loyalty because it was responsible in many ways for keeping hope alive through what one writer here calls the "Dark Ages of the 20th Century."

"During the past four years, many of us have sat up until late at night listening to our radios," says the writer. "There were some very brave broadcasts."

The listeners, too, had to be brave. Through much of the post-World War II period, listening to Western broadcasts was a crime in Hungary. "When we listen to the Europe station, my mother still gets nervous," says a Budapest translator. "She wants to turn down the volume and close the curtains."

Now, the toughest competition for Radio Free Europe comes during the late-night slot. Hungarian radio often saves its most politically outspoken broadcasts for around midnight. Television, which most of the time is considered rather tame, has entered the running with a new program, "The End of the Day," which comes on after 11 p.m. It is a talk show with opposition leaders and political experts who discuss Hungary's domestic problems as well as foreign affairs. Those who want to hear even more radical views have to get up at five on Sunday morning for "Sunday Journal," on Hungarian Radio.

The competitive spirit is clearly influencing Radio Free Europe, which is trying to beef up programs. The Budapest office plans to hire free-lance reporters to cover the latest happenings in Hungarian country towns from Nagykanizsa in the west to Nyiregyhaza in the east. The Hungarian service has a daily 40-minute news show called Newsreel, with international and domestic news, plus a daily news review of opinions from around the world.

There's also a host of new programs, trying to lighten up on the traditional diet of politics. A daily 35-minute program called "The March of Time" tries to find interesting tidbits of lighthearted news and gossip from around the world. There's a program for women and a science show. And to attract younger listeners, Radio Free Europe intersperses the latest in Western rock groups. The Pet Shop Boys are big this year in Budapest.

"We are starving for all the news," says Mr. Deak, the student. "Every moment we want to know everything about the world."

Proposals for government-operated "national service," like influenza, flare up from time to time, depress the resistance of the body politic, run their course, and seem to disappear, only to mutate and afflict public life anew.

The disease metaphor comes to mind, of course, not as an aspersion on the advocates of national service. Rather, it is born of frustration with having to combat constantly changing strains of a statist idea that one thought had been eliminated in the early 1970s, along with smallpox.

It is back with us again, in the form of legislation to pay volunteers under a "National and Community Service Act," a proposal with a serious shot at congressional passage this fall.

Why does the national-service virus keep coming back? Perhaps it is because utopian nostalgia evokes both military experience and the social gospel. If only we could get America's wastrel youth into at least a psychic uniform we might be able to teach self-discipline again and revive the spirit of giving.

A quarter of a century ago national service was promoted as a way of curing the manifest inequities of the draft -- by, of all things, expanding the draft. Those of us who resisted the idea then suspect today that an obligation of government service for all young people is still the true long-term aim of many national-service backers, despite their protests that present plans contain no coercion.

Choice of the volunteer military in the 1970s seemed to doom national service as much as the draft. But the virus was kept alive in sociology departments until a couple of years ago, when it again was let loose. This time it attempted to invade two connected problems, the rising cost of higher education and the rising expense to the federal government of educational grants and loans. Why not keep and even expand the loans and grants, the advocates reasoned, but require some form of service from each recipient? Military service, moreover, could be a national-service option.

Thus, undoubtedly it was hoped that the new strain of national service would prove contagious, infecting patriotic conservatives, pay-as-you-go moderates, and idealistic liberals. The Democratic Leadership Council, a centrist group sponsoring the plan, surely thought it might help the party to attract support, especially among college students and their parents. A provision allowing grants to be applied to first-home purchases was added to appeal to those who had had enough of schooling.

The DLC plan envisaged "volunteers" planting trees, emptying bedpans, tutoring children, and assisting librarians for $100 a week, tax free, plus medical care. With a tax-free $10,000 voucher payment at the end of each year, the volunteers would be making a wage comparable to $17,500 a year. Mind you, most of "the volunteers" would be unskilled 17- to 18-year-olds, some not even high school graduates, and many saving money by living at home. They would be doing better financially under national service than many taxpayers working at the same kinds of jobs and perhaps supporting families.

As it happened, political resistance developed among educational and minority interests that count on the present education grant system, so the national-service devotees decided to abandon the supposedly crucial principle of "give in order to get." Opposition to national service from the Pentagon, which wants to protect its own recruitment process, also led to the military-service option being dropped.

Clearly, a new rationale for national service had to be cooked up. What better place to turn than Sen. Edward Kennedy's Labor Committee, that great stove of government expansionism, where many a stagnant pot of porridge is kept on the back burner until it can be brought forward and presented as nouvelle cuisine?

In this case, the new recipe for national service called for throwing many assorted legislative leftovers into one kettle: a demonstration project for educational aid (particularly satisfying to the DLC and Sen. Sam Nunn), a similar demonstration program for youth conservation (a la Sen. Chris Dodd), a competitive grants program to states to spark youth and senior citizen volunteer projects (a Kennedy specialty), a community service work-study program for students (pleasing to the palate of Sen. Dale Bumpers, among others), plus engorgement of the VISTA volunteer program and the Retired Senior Volunteer, Foster Grandparent, and Senior Companion programs. Before the menu is printed, the House may add more ingredients, also changing the initial price, now posted at some $330 million.

It is widely known that "too many cooks spoil the broth," but that wisdom does not necessarily reflect the view of the cooks, especially if they are senators. The "omnibus" bill coming out of Congress may be unwholesome glop, but the assorted chefs are happy and the restaurant is pushing the dish very hard. The aroma of patronage is in the air.

Is the voluntary sector so weak that it needs such unsolicited assistance? On the contrary, it is as robust as ever. According to the Gallup Poll, American adults contribute an average of two hours a week of service, while financial contributions to charity in the 1980s have risen 30% (adjusted for inflation).

Even if government does see various "unmet needs," national service is not the way to meet them. If we want to support students, we might adopt the idea used in other countries of offering more scholarships based on something called "scholarship," rather than on the government's idea of "service." Or we might provide a tax credit for working students. What we do not need to do is start a war, and then try to justify it by creating a GI Bill.

To the extent we lack manpower to staff menial jobs in hospitals, for example, we should raise pay, pursue labor-saving technology, or allow more legal immigration, rather than overpay high school graduates as short-term workers and cause resentment among permanent workers paid lesser amounts to do the same jobs.

Will national service, in the current highly politicized and opportunistic form exert enough appeal to get adopted? Not necessarily. Polls show wide, generalized support for some vague concept of service, but the bill now under discussion lacks any passionate public backing. Nonetheless, Senate Democrats are organizing a roll of supporting "associations," "societies" and "councils," some of which may hope to receive the paid "volunteers."

So far, the president seems ill-disposed to substitute any of the omnibus for his own free-standing proposal to endow a "Points of Light" foundation with $25 million to inform citizens of all ages and exhort them to genuine volunteerism.

However, even this admirable plan could become objectionable if the White House gives in to congressional Democratic pressure to add to the scope of the president's initiative or to involve the independent foundation in "brokering" federal funds for volunteer projects.

There's no need for such concessions. The omnibus can be defeated, the virus controlled, and real service protected. National service, the utopian idea, still won't go away then, of course, but the millions of knee-socked youth performing works of "civic content" will be mobilized only in the imagination of their progenitors.

---

Mr. Chapman is a fellow at the Indianapolis-based Hudson Institute. This article is adapted from remarks at a Hoover Institution conference on national service, in which Mr. Szanton also participated.

(See related story: "Target Expenditures Narrowly" -- WSJ Oct. 16, 1989)

Drug Emporium Inc. said Gary Wilber, 39 years old, who had been president and chief operating officer for the past year, was named chief executive officer of this drugstore chain.

He succeeds his father, Philip T. Wilber, who founded the company and remains chairman.

Robert E. Lyons III, 39, who headed the company's Philadelphia region, was appointed president and chief operating officer, succeeding Gary Wilber.

American Physicians Service Group Inc. said it purchased about 42% of Prime Medical Services Inc. for about $5 million from Texas American Energy Corp.

American Physicians said it also replaced four Texas American representatives on Prime's five-member board.

American provides a variety of financial services to doctors and hospitals. Prime, based in Bedminster, N.J., provides management services to cardiac rehabilitation clinics and diagnostic imaging centers. For the year ended June 30, Prime had a net loss of $3 million on sales of $13.8 million.

The inflation-adjusted growth rate for France's gross domestic product for the second quarter was revised upward to 0.8% from the previous three months from the initial estimate of 0.7%, the National Statistics Institute said.

The state agency said the latest revision left the growth rate for the first-quarter compared with the previous three months unchanged at 1.3%.

If the economy continues to expand by 0.8% a quarter for the rest of the year, it would leave GDP growth for all of 1989 at 3%, the institute said. That would be down from the 3.8% rise posted in 1988.

The Canadian government announced a new, 12-year Canada Savings Bond issue that will yield investors 10.5% in the first year.

The annual interest rate for each of the next 11 years will be set each fall, when details of a new series are released.

Canada Savings Bonds are major government instruments for meeting its financial requirements. The government has about 41.4 billion Canadian dollars (US$35.2 billion) of such bonds currently outstanding.

Only Canadian residents are permitted to buy Canada Savings Bonds, which may be redeemed any time at face value. The bonds go on sale Oct. 19.

The debate over National Service has begun again. After a decade in which more than 50 localities established their own service or conservation corps and dozens of school systems made community service a prerequisite to high-school graduation, the focus has shifted to Washington.

At least 10 bills proposing one or another national program were introduced in Congress this spring. One, co-sponsored by Sen. Sam Nunn (D., Ga.) and Rep. Dave McCurdy (D., Okla.), would have restricted federal college subsidies to students who had served. An omnibus bill assembled by Sen. Edward Kennedy (D., Mass.), and including some diluted Nunn-McCurdy provisions along with proposals by fellow Democratic Sens. Claiborne Pell, Barbara Mikulski and Christopher Dodd, has been reported out of the Senate Labor Committee. It might well win Senate passage. President Bush has outlined his own Youth Entering Service (YES) plan, though its details remain to be specified.

What is one to think of all this? Doctrine and special interests govern some responses. People eager to have youth "pay their dues to society" favor service proposals -- preferably mandatory ones. So do those who seek a "re-energized concept of citizenship," a concept imposing stern obligations as well as conferring rights. Then there are instinctive opponents. To libertarians, mandatory service is an abomination and voluntary systems are illegitimate uses of tax money. Devotees of the market question the value of the work national service would perform: If the market won't pay for it, they argue, it can't be worth its cost. Elements of the left are also reflexively opposed; they see service as a cover for the draft, or fear the regimentation of youth, or want to see rights enlarged, not obligations.

But what about those of us whose views are not predetermined by formula or ideology? How should we think about national service? Let's begin by recognizing a main source of confusion -- "national service" has no agreed meaning. Would service be voluntary or compulsory? Short or long? Part-time or full-time? Paid or unpaid? Would participants live at home and work nearby or live in barracks and work on public lands? What kinds of work would they do?

What does "national" mean? Would the program be run by the federal government, by local governments, or by private voluntary organizations? And who would serve? Only males, as with the draft, or both sexes? Youth only or all ages? Middle-class people, or poor people, or a genuine cross-section? Many or few?

Those are not trivial questions, and the label "national service" answers none of them. Then how should we think about national service? As a starting point, here are five propositions:

1. Consider the ingredients, not the name. Ignore "national service" in the abstract; consider specific proposals. They will differ in crucial ways.

2. "Service" should be service. As commonly understood, service implies sacrifice. It involves accepting risk, or giving up income, or deferring a career. It follows that proposals like Nunn-McCurdy, whose benefits to enrollees are worth some $17,500 a year, do not qualify. There is a rationale for such bills: Federal subsidies to college students amount to "a GI Bill without the GI"; arguably those benefits should be earned, not given. But the earnings exceed by 20% the average income of young high-school graduates with full-time jobs. Why call that service?

3. Encouragement is fine; compulsion is not. Compelled service is unconstitutional. It is also unwise and unenforceable. (Who will throw several hundred thousand refusers in jail each year?) But through tax policy and in other ways the federal government encourages many kinds of behavior. It should also encourage service -- preferably by all classes and all ages. Its encouragement should strengthen and not undercut the strong tradition of volunteering in the U.S., should build on the service programs already in existence, and should honor local convictions about which tasks most need doing.

4. Good programs are not cheap. Enthusiasts assume that national service would get important work done cheaply: forest fires fought, housing rehabilitated, students tutored, day-care centers staffed. There is important work to be done, and existing service and conservation corps have shown that even youths who start with few skills can do much of it well -- but not cheaply.

Good service programs require recruitment, screening, training and supervision -- all of high quality. They involve stipends to participants. Full-time residential programs also require housing and full-time supervision; they are particularly expensive -- more per participant than a year at Stanford or Yale. Non-residential programs are cheaper, but good ones still come to some $10,000 a year. Are they worth that? Evaluations suggest that good ones are -- especially so if the effects on participants are counted. But the calculations are challengeable.

5. Underclass youth are a special concern. Are such expenditures worthwhile, then? Yes, if targeted. People of all ages and all classes should be encouraged to serve, but there are many ways for middle-class kids, and their elders, to serve at little public cost. They can volunteer at any of thousands of non-profit institutions, or participate in service programs required by high schools or encouraged by colleges or employers.

Underclass youth don't have those opportunities. They are not enrolled in high school or college. They are unlikely to be employed. And they have grown up in unprecedentedly grim circumstances, among family structures breaking down, surrounded by self-destructive behaviors and bleak prospects. But many of them can be quite profoundly reoriented by productive and disciplined service.

Some won't accept the discipline; others drop out for other reasons. But some whom nothing else is reaching are transformed. Learning skills, producing something cooperatively, feeling useful, they are no longer dependent -- others now depend on them. Even if it is cheaper to build playgrounds or paint apartments or plant dune-grass with paid professionals, the effects on the young people providing those services alter the calculation.

Strictly speaking, these youth are not performing service. They are giving up no income, deferring no careers, incurring no risk. But they believe themselves to be serving, and they begin to respect themselves (and others), to take control of their lives, to think of the future. That is a service to the nation. It is what federal support should try hardest to achieve.

---

Mr. Szanton, a Carter administration budget official, heads his own Washington-based strategic planning firm. He is a co-author of "National Service: What Would It Mean?" (Lexington Books, 1986).

(See related story: "Put Brakes on the Omnibus" -- WSJ Oct. 16, 1989)

Government officials here and in other countries laid plans through the weekend to head off a Monday market meltdown -- but went out of their way to keep their moves quiet.

Federal Reserve Chairman Alan Greenspan was on the telephones, making it clear to officials in the U.S. and abroad that the Fed was prepared to inject massive amounts of money into the banking system, as it did in October 1987, if the action were needed to prevent a financial crisis.

And at the Treasury, Secretary Nicholas Brady talked with friends and associates on Wall Street while Assistant Secretary David Mullins carefully analyzed data on the Friday market plunge.

But the officials feared that any public announcements would only increase market jitters. In addition, officials at the Fed and in the Bush administration decided that avoiding overt actions and statements over the weekend would give them more strength and flexibility should Friday's market drop turn into this morning's rout.

"The disadvantage at this point is that anything you do that looks like you are doing too much tends to reinforce a sense of crisis," said one government official, insisting on anonymity.

The Fed's efforts at secrecy were partly foiled Sunday morning, when both the New York Times and the Washington Post carried stories quoting a senior Fed official saying the central bank was prepared to pour cash into the banking system Monday morning. Fed Chairman Greenspan was surprised by both stories, according to knowledgeable sources, and insisted he hadn't authorized any public comment. Nevertheless, Fed officials acknowledged the stories were reasonably accurate portrayals of the central bank's game plan. It is prepared to assume the same role it played in October 1987, providing money to the markets if necessary to keep the financial system afloat. The Fed provides money to the banking system by buying government securities from financial institutions.

The reticence of federal officials was evident in the appearance Sunday of Budget Director Richard Darman on ABC's "This Week." "Secretary of the Treasury Brady and Chairman Greenspan and the chairman of the SEC and others have been in close contact. I'm sure they'll do what's right, what's prudent, what's sensible," he said.

When it was suggested his comment was a "non-answer," Mr. Darman replied: "It is a non-answer. But, in this context, that's the smart thing to do."

At the Treasury, Secretary Brady issued a statement minimizing the stock market's drop. "Today's stock market decline doesn't signal any fundamental change in the condition of the economy," he said. "The economy remains well-balanced, and the outlook is for continued moderate growth."

But administration officials conceded that Friday's drop carried the chance of further declines this week. "One possibility is that this is a surgical setback, reasonably limited in its breadth, and not a major problem," said one senior administration official, who also asked that he not be named. "The other is that we see another major disaster, like two years ago. I think that's less likely."

Nevertheless, Fed Chairman Greenspan and Vice Chairman Manuel Johnson were in their offices Sunday evening, monitoring events as they unfolded in markets around the world. The action was expected to begin with the opening of the New Zealand foreign exchange markets at 5 p.m. EST -- when stocks there plunged -- and to continue as the trading day began later in the evening in Tokyo and through early this morning in Europe. Both the Treasury and the Fed planned to keep market rooms operating throughout the night to monitor the developments. In Tokyo, share prices dropped sharply by 1.7% in early Monday morning trading. After the initial slide, the market appeared to be turning around but by early afternoon was headed lower.

In the Bush administration, the lead is being taken by Treasury Secretary Brady, Undersecretary Robert Glauber and Assistant Secretary Mullins. The three men worked together on the so-called Brady Commission, headed by Mr. Brady, which was established after the 1987 crash to examine the market's collapse. As a result they have extensive knowledge in financial markets, and financial market crises.

Mr. Brady was at the White House Friday afternoon when the stock market's decline began. He was quickly on the phone with Mr. Mullins, who in turn was talking with the chairmen of the New York and Chicago exchanges. Later, Mr. Brady phoned Mr. Greenspan, SEC Chairman Richard Breeden and numerous contacts in New York and overseas. Aides say he continued to work the phones through the weekend.

Administration officials say President Bush was briefed throughout Friday afternoon and evening, even after leaving for Camp David. He had frequent telephone consultations with Mr. Brady and Michael Boskin, chairman of the counsel of economic advisers.

Government officials tried throughout the weekend to render a business-as-usual appearance in order to avoid any sense of panic. Treasury Undersecretary David Mulford, for instance, was at a meeting of the Business Council in Hot Springs, Va., when the stock market fell, and remained there through the following day. And as of last night, Fed Chairman Greenspan hadn't canceled his plans to address the American Bankers Association convention in Washington at 10 a.m. this morning.

Ironically, Mr. Greenspan was scheduled to address the same convention in Dallas on Oct. 20, 1987. He flew to Dallas on Oct. 19, when the market plummeted 508 points, but then turned around the next morning and returned to Washington without delivering his speech.

(See related story: "Abreast of the Market: Special Steps Didn't Cool Fever to Sell" -- WSJ Oct. 16, 1989)

Following is a weekly listing of unadited net asset values of publicly traded investment fund shares, reported by the companies as of Friday's close. Also shown is the closing listed market price or a dealer-to-dealer asked price of each fund's shares, with the percentage of difference. @ Stock N.A. Stock % @ Fund Name Exch. Value Price Diff. @ Diversified Common Stock Funds @Adams Express NYSE 19.14 16 3/8 - 14.45 @Baker Fentress NYSE 28.43 23 3/4 - 16.46 @Blue Chip Value NYSE 7.79 7 - 10.14 @Clemente Global Gro NYSE b11.56 9 7/8 - 14.58 @Gemini II Capital NYSE 19.55 16 3/4 - 14.32 @Gemini II Income NYSE 9.95 12 7/8 + 29.40 @General Amerinvest NYSE 22.32 19 1/8 - 14.31 @Growth Stock Outlook NYSE 10.51 9 3/4 - 7.23 @Lehman Corp. NYSE 16.16 12 3/4 - 21.10 @Liberty All-Star Eqty NYSE 9.47 7 7/8 - 16.84 @Niagara Share Corp. NYSE 17.40 14 1/2 - 16.67 @Nicholas-Applegate NYSE 11.13 9 5/8 - 13.52 @Quest for Value Cap NYSE 16.46 12 1/4 - 25.58 @Quest for Value Inco NYSE 11.80 12 1/2 + 5.93 @Royal Value Trust NYSE 11.29 9 1/8 - 19.18 @Schafer Value Trust NYSE 11.70 10 1/4 - 12.39 @Source Capital NYSE 42.65 42 - 1.52 @Tri-Continental Corp. NYSE 28.62 23 1/2 - 17.89 @Worldwide Value NYSE z z z @Zweig Fund NYSE 11.19 11 1.2 + 2.77 @ Closed End Bond Funds @CIM High Yield Secs AMEX 8.22 7 - 14.84 @Franklin Prin Mat Tr NYSE b8.93 9 7/8 + 10.58 @Franklin Universal Tr NYSE b9.03 9 1/8 + 1.05 @Municipal High Inco NYSE 9.57 9 1/2 - 0.73 @Zenith Income Fund NYSE 7.61 7 7/8 + 3.48 @ Flexible Portfolio Funds @America's All Season OTC 5.90 5 1/4 - 11.02 @America's All S Inco OTC 9.19 9 1/2 + 3.37 @Zweig Total Return Fd NYSE 9.60 9 1/2 - 1.04 @Specialized Equity and Convertible Funds @American Capital Conv NYSE 24.21 21 1/2 - 11.19 @ASA Ltd. NYSE bc54.70 44 3/4 - 18.19 @Asia Pacific NYSE 14.96 13 1/2 - 9.76 @Austria Fund NYSE 10.85 11 1/2 + 5.99 @Bancroft Convertible AMEX 21.65 19 - 12.24 @Bergstrom Capital AMEX 63.66 62 1/8 - 2.41 @BGR Precious Metals TOR be11.61 10 1/2 - 9.56 @Brazil NYSE g23.19 10 3/8 - 55.26 @CNV Holdings Capital NYSE z z z @CNV Holdings Income NYSE z z z @Castle Convertible AMEX 22.03 19 3/8 - 12.05 @Central Fund Canada AMEX b4.97 4 13/16 - 3.17 @Central Securities AMEX 12.76 10 1/4 - 19.67 @Couns Tandem Secs NYSE 12.10 10 1/8 - 16.32 @Cypress Fund AMEX 11.11 10 1/2 - 5.49 @Duff & Phelps Sel @ Utils NYSE 8.46 8 - 5.44 @Ellsw Conv Gr & Inc. AMEX 9.00 7 5/8 - 15.28 @Engex AMEX 13.56 10 7/16 - 23.03 @1st Australia AMEX 10.93 9 3/4 - 10.80 @First Financial Fund NYSE 11.65 10 3/4 - 7.73 @First Iberian AMEX 10.31 13 3/8 + 29.73 @France Fund NYSE b13.03 12 3/8 - 5.03 @Gabelli Equit Trust NYSE 14.04 13 3/8 - 4.74 @Germany Fund NYSE 10.13 10 - 1.28 @H&Q Healthcare Inv NYSE 10.44 9 - 13.79 @Hampton Utils Tr Cap AMEX b11.86 10 1/8 - 14.63 @Hampton Utils Tr Pref AMEX b48.66 47 3/4 - 1.87 @Helvetia Fund NYSE 12.63 11 3/4 - 6.97 @India Growth Fund NYSE f13.92 16 3/4 + 20.33 @Italy Fund NYSE b11.64 13 1/4 + 13.83 @Korea Fund NYSE 18.74 39 3/8 +110.11 @Malaysia Fund NYSE 12.74 12 - 5.81 @Meeschaert G&C MWSE 8.21 8 - 2.56 @Mexico Fund NYSE b13.07 12 3/8 - 5.32 @Morgan Grenf Sm Cap NYSE 10.73 9 1/8 - 14.96 @Patriot Prem Div Fd NYSE 9.45 10 + 5.82 @Petrol & Resources NYSE 29.66 26 - 12.34 @Pilgrim Regional NYSE z z z @Rl Estate Sec Inco Fd AMEX 8.19 7 7/8 - 3.85 @Regional Fin Shrs Inv NYSE 9.90 9 - 9.09 @ROC Taiwan Fund NYSE 15.90 13 3/4 - 13.52 @Scudder New Asia NYSE 16.85 13 1/8 - 22.11 @SE Savings Inst Fd OTC b11.04 11 1/2 + 4.17 @Spain Fund NYSE 14.54 27 1/2 + 89.13 @Taiwan Fund NYSE b42.78 39 1/2 - 7.67 @TCW Convertible Secs NYSE b8.94 8 - 10.51 @Templeton Em Mkts AMEX b14.12 14 1/4 + 0.92 @Templeton Value Fund NYSE b10.69 9 7/8 - 7.62 @ Thai Fund NYSE 17.22 22 3/4 + 32.11 @United Kingdom Fund NYSE 11.36 9 1/4 - 18.57 @Z-Seven OTC 13.98 14 1/4 + 1.93

b-As of Thursday's close. c-Translated at Commercial Rand exchange rate. e-In Canadian dollars. f-As of Wednesday's close. g-10.06.89 NAV:22.15. z-Not available.

Put down that phone.

Walk around the room; take two deep breaths. Resist the urge to call your broker and sell all your stocks.

That's the advice of most investment professionals after Friday's 190-point drop in the Dow Jones Industrial Average.

No one can say for sure what will happen today. And investment pros are divided on whether stocks will perform well or badly in the next six months. But they're nearly unanimous on one point: Don't sell into a panic.

Investors who sold everything after the crash of 1987 lived to regret it. Even after Friday's plunge, the Dow Jones Industrial Average was 48% above where it landed on Oct. 19 two years ago.

Panic selling also was unwise during other big declines in the past. The crash of 1929 was followed by a substantial recovery before the great Depression and awful bear market of the 1930s began. The "October massacres" of 1978 and 1979 were scary, but didn't lead to severe or sustained downturns.

Indeed, some pros see Friday's plunge, plus any further damage that might occur early this week, as a chance for bargain hunting. "There has been a lot of emotional selling that presents a nice buying opportunity if you've got the cash," says Stephen B. Timbers, chief investment officer of Chicago-based Kemper Financial Services Inc.

But most advisers think the immediate course for individual investors should be to stand pat. "When you see a runaway train," says Steve Janachowski, partner in the San Francisco investment advisory firm Brouwer & Janachowski, "you wait for the train to stop."

Even for people who expect a bear market in coming months -- and a sizable number of money managers and market pundits do -- the advice is: Wait for the market to bounce back, and sell shares gradually during rallies. The best thing individual investors can do is "just sit tight," says Marshall B. Front, executive vice president and head of investment counseling at Stein Roe & Farnham Inc., a Chicago-based investment counseling firm that manages about $18 billion.

On the one hand, Mr. Front says, it would be misguided to sell into "a classic panic." On the other hand, it's not necessarily a good time to jump in and buy. "This is all emotion right now, and when emotion starts to run, it can run further than anyone anticipates," he said. "So it's more prudent to wait and see how things stabilize."

Roger Ibbotson, professor of finance at Yale University and head of the market information firm Ibbotson Associates Inc., says, "My real advice would be to just ride through it. Generally, it isn't wise to be in and out" of the stock market.

Mr. Ibbotson thinks that this week is "going to be a roller-coaster week." But he also thinks it is "a good week to consider buying."

John Snyder, former president of the Los Angeles chapter of the National Association of Investors Corp., an organization of investment clubs and individual investors, says his fellow club members didn't sell in the crash of 1987, and see no reason to sell now. "We're dedicated long-term investors, not traders," he says. "We understand panics and euphoria. And we hope to take advantage of panics and buy stocks when they plunge."

One camp of investment pros sees what happened Friday as an opportunity. Over the next days and weeks, they say, investors should look for stocks to buy.

Friday's action "was an old-fashioned panic," says Alfred Goldman, director of technical market analysis for A.G. Edwards & Sons in St. Louis. "Stocks were being thrown out of windows at any price." His advice: "You ought to be there with a basket catching them."

James Craig, portfolio manager for the Denver-based Janus Fund, which has one of the industry's better track records, started his buying during Friday's plunge. Stocks such as Hershey Foods Corp., Wal-Mart Stores Inc., American International Group Inc. and Federal National Mortgage Association became such bargains that he couldn't resist them, he says.

And Mr. Craig expects to pick up more shares today. "It will be chaotic at first, but I would not be buying if I thought we were headed for real trouble," he says. He argues that stocks are reasonably valued now, and that interest rates are lower now than in the fall of 1987.

Mr. Front of Stein Roe suggests that any buying should "concentrate in stocks that have lagged the market on the up side, or stocks that have been beaten down a lot more than the market in this correction." His firm favors selected computer, drug and pollution-control stocks.

Other investment pros are more pessimistic. They say investors should sell stocks -- but not necessarily right away. Many of them stress that the selling can be orderly, gradual, and done when stock prices are rallying.

On Thursday, William Fleckenstein, a Seattle money manager, used futures contracts in his personal account to place a bet that the broad market averages would decline. He thinks the underlying inflation rate is around 5% to 6%, far higher than most people suppose.

In the pension accounts he manages, Mr. Fleckenstein has raised cash positions and invested in gold and natural gas stocks, partly as an inflation hedge. He thinks government officials are terrified to let a recession start when government, corporate and personal debt levels are so high. So he thinks the government will err on the side of rekindled inflation.

As a result, Mr. Fleckenstein says, "I think the ball game's over," and investors are about to face a bear market.

David M. Jones, vice president at Aubrey G. Lanston & Co., recommends Treasury securities (of up to five years' maturity). He says the Oct. 6 employment report, showing slower economic growth and a severe weakening in the manufacturing sector, is a warning sign to investors.

One strategy for investors who want to stay in but hedge their bets is to buy "put" options, either on the individual stocks they own or on a broad market index. A put option gives its holder the right (but not the obligation) to sell a stock (or stock index) for a specified price (the strike price) until the option expires.

Whether this insurance is worthwhile depends on the cost of an option. The cost, or premium, tends to get fat in times of crisis. Thus, buying puts after a big market slide can be an expensive way to hedge against risk.

The prices of puts generally didn't soar Friday. For example, the premium as a percentage of the stock price for certain puts on Eli Lilly & Co. moved up from 3% at Thursday's close to only 3.3% at Friday's close, even though the shares dropped more than $5.50. But put-option prices may zoom when trading resumes today.

It's hard to generalize about a reasonable price for puts. But investors should keep in mind, before paying too much, that the average annual return for stock holdings, long-term, is 9% to 10% a year; a return of 15% is considered praiseworthy. Paying, say, 10% for insurance against losses takes a deep bite out of the return.

---

James A. White and Tom Herman contributed to this article.

(See related story: "Gurus' Views Vary, But Crash Not Seen" -- WSJ Oct. 16, 1989)

Coldwell Banker Commercial Group said it sold $47 million of common stock to its employees at $10 a share, giving them a total stake of more than 40% in the commercial real estate brokerage firm.

The firm, which was acquired in April from Sears, Roebuck & Co. in a management-led buy-out, had planned to sell up to $56.4 million of stock, or a 50% stake in the company, to its 5,000 employees.

Though the offering didn't sell out, James J. Didion, chairman and chief executive officer, said, "We're pretty proud of the employees' response." He noted that unlike an employee stock ownership plan, where a company usually borrows money from third party lenders to buy stock that it sets aside to award employees over time, here employees had to fork out their own cash for the stock. "They came up with their own money instead of borrowed money," Mr. Didion said. "It's totally different."

He said the offering was designed to create long-term incentives for employees. "We're in a service business, and in that context, it's vital to have your employees involved in the ownership so they have a stake in the success." The brokerage firm won't pay a dividend on the stock.

Employees have the right to trade stock among themselves, and the company will establish an internal clearing house for these transactions. They may also eventually sell the shares to third parties, but the outside investors who own the remaining 60% of Coldwell Banker have the right to first refusal.

Those outside investors in Coldwell Banker include Carlyle Group, a closely held Washington, D.C., merchant banking firm whose co-chairman is Frank Carlucci, former secretary of defense; Frederic V. Malek, senior adviser to Carlyle Group; Mellon Family Trust of Pittsburgh; Westinghouse Credit Corp., the financial services unit of Westinghouse Electric Corp.; Bankers Trust Co., a unit of Bankers Trust New York Corp.; and a group of Japanese investors represented by the investment banking unit of Tokyo-based Sumitomo Bank. Bankers Trust and Sumitomo financed the $300 million acquisition from Sears Roebuck. Coldwell Banker also named three outside director nominees for its 17 member board. The nominees are Gary Wilson, chief financial officer of Walt Disney Co.; James Montgomery, chief executive officer of Great Western Financial Corp.; and Peter Ubberroth, former commissioner of baseball and now a private investor.

The first major event this morning in U.S. stock and futures trading may be a pause at the Chicago Mercantile Exchange.

Under a reform arising from the 1987 crash, trading in the Merc's stock-index futures will break for 10 minutes if the contract opens and stays five points from Friday's close, a move equal to 40 points on the Dow Jones Industrial Average. The aim of the interruption would be to ease the opening of the New York Stock Exchange, which would be hammered by such a volatile move on the Merc.

That early-morning breather is just one of a number of safeguards adopted after the 1987 crash. The Big Board also added computer capacity to handle huge surges in trading volume. Several of those post-crash changes kicked in during Friday's one-hour collapse and worked as expected, even though they didn't prevent a stunning plunge. But the major "circuit breakers" have yet to be evaluated. A deeper market plunge today could give them their first test.

A further slide also would resurrect debate over a host of other, more sweeping changes proposed -- but not implemented -- after the last crash. Most notably, several of the regulatory steps recommended by the Brady Task Force, which analyzed the 1987 crash, would be revived -- especially because that group's chairman is now the Treasury secretary. The most controversial of the Brady recommendations involved establishing a single overarching regulator to handle crucial cross-market questions, such as setting consistent margin requirements for the stock and futures markets.

But for the moment, attention focuses on the reforms that were put into place, and market regulators and participants said the circuit breakers worked as intended. Big Board and Merc officials expressed satisfaction with the results of two limits imposed on of the Merc's Standard & Poor's 500 contract, as well as "hot-line" communications among exchanges. Those pauses -- from 2:07 p.m. to 2:30 p.m. CDT and from 2:45 p.m. until the close of trading a half-hour later -- forced traders to buy and sell contracts at prices at or higher than their frozen levels.

During the first halt, after the S&P index had fallen 12 points, the Big Board's "Sidecar" computer program automatically was triggered. That system is designed to separate computer-generated program trades from all other trades to help exchange officials resolve order imbalances in individual stocks.

One Merc broker compared the action in the S&P pit during the two freezes to a fire at a well-drilled school. "You don't want the fire but you know what to do," said Howard Dubnow, an independent floor broker and a Merc governor. "There was no panic. The system worked the way we devised it to work."

After reopening for about 15 minutes, the S&P index tumbled to its 30-point limit and the second freeze went into effect. Traders then spent the last half-hour "watching to see if the Dow would drop 250 points," Mr. Dubnow added, referring to the level at which the stock market itself would have closed for an hour. One observer estimated that 80% to 90% of the S&P traders "were just standing around watching."

But the 250-point circuit breaker never had to kick in, and freezes on the Chicago Board of Trade's Major Market Index also weren't triggered. The MMI and the S&P 500 are the two major indexes used by program traders to run their computerized trading strategies. The programs are considered by many to be a major cause of the 1987 crash.

The process of post-crash reforms began with calls to remake the markets and wound up a year later with a series of rather technical adjustments.

In October 1987, just after the market drop, Washington was awash in talk of sweeping changes in the way the financial markets are structured and regulated. Over the next year that grand agenda was whittled down to a series of steps to soften big stock drops by interrupting trading to give market players time to pause and reconsider positions. In addition, limits were placed on computer-driven trading, and steps were taken to better link the stock and futures markets. Few changes were made in the way the markets are regulated.

At the outset the prime target was program trading, which was much discussed but little understood on Capitol Hill. There were also calls to strip the stock markets of "derivative" products, such as stock-index futures and options, which Federal Judge Stanley Sporkin, for example, likened to "barnacles attached to the basic market." And there was much criticism of the New York Stock Exchange's system of having stock trades flow through specialists, or market makers.

When the Brady Task Force's powerful analysis of the crash was released in January 1988, it immediately reshaped the reformers' agenda. Arguing that the separate financial marketplaces acted as one, and concluding that the crash had "raised the possibility of a full-scale financial system breakdown," the presidential task force called for establishing a super-regulator to oversee the markets, to make margins consistent across markets, to unify clearing systems and to install circuit breakers.

Only the last of those recommendations ever was implemented. The Reagan White House held the Brady recommendations at arm's length and named a second panel -- the Working Group on the Financial Markets -- to review its analysis and those of other crash studies. In May 1988, the Working Group, made up of representatives from the Federal Reserve, the Treasury, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, finally endorsed only circuit breakers.

After several more months of arguments among various stock exchanges and futures markets, circuit breakers were set in place, with the most notable suspending trading after 250 and 400 point drops in the Dow Jones Industrial Average. Privately, some free marketeers dismissed such mechanisms as sops to interventionists. After all, this free-market argument went, the Dow only dropped more than 250 points once this century.

--- @ Reforms Set After '87 Crash

"Circuit breakers" set to soften big drops:

-- If S&P futures fall 5 points at opening, contract trading pauses for 10 minutes.

-- If Dow Industrials fall 25 points at opening, contract trading pauses for 10 minutes.

-- If S&P futures fall 12 points (equivalent to about 100 points on DJIA), trading is frozen for half hour to that price or higher. On NYSE program trades are diverted into a separate computer file to determine buy and sell orders.

-- If S&P futures fall 30 points, trading is restricted for an hour to that price or higher.

-- If Dow Industrials fall 250 points, trading on the Big Board halts for an hour. S&P and MMI contracts also halt.

-- If DJIA drops 400 points, Big Board halts trading for two hours. Trading in MMI and S&P futures also halted. @ Reforms Never Enacted After '87 Crash:

Brady Task Force recommendations (Jan. 1988):

-- Establish an overarching regulator for financial markets

-- Unify trade-clearing systems

-- Make margins consistent across stock and futures markets

SEC proposals (May 1988):

-- Require prompt reports of large securities trades.

-- Give SEC authority to monitor risk-taking by affiliates of brokerage firms.

-- Transfer jurisdiction over stock-related futures to SEC from CFTC. (Opposed by new SEC chairman) -- Give SEC authority to halt securities trading, (also opposed by new SEC chairman).

Congressional proposal:

-- Create a task force to review current state of the securities markets and securities laws.

SOVIET TV

Breaking the Soviet government's television monopoly, an independent company has gained rights to show world programming, including American films.

"There must not be a monopoly, there must be freedom of choice for both journalists and viewers," Nikolai I. Lutsenko, the president of the Nika TV company, told the weekly newspaper Nedelya. The company is already working on its own programming in several provincial cities and hopes to be on the air regularly in about a year, the newspaper said.

Mr. Lutsenko told Nedelya that he recently had been to the U.S. to pick up the rights to show 5,000 U.S. films in the Soviet Union. Nedelya's article was accompanied by a picture of Mr. Lutsenko interviewing singer John Denver in Colorado.

Even though it will be independent of official television, Nika will have an oversight board that will include members of the Communist youth league.

STRIKE AT DE BEERS

South Africa's National Union of Mineworkers said that about 10,000 diamond miners struck for higher wages at De Beers Consolidated Mines Ltd. De Beers said that workers at five of the group's mines were on strike, which it said was peaceful, with orderly picketing occurring at one of the mines. The deadlock in negotiations occurred with De Beers offering a 17% increase in the minimum-wage category while the union demanded a 37.6% increase in the minimum wage.

JAPANESE PINBALL Japan's opposition Socialist Party denied that its legislators had been bribed by pinball-parlor owners. The allegation had been raised in Parliament by the governing Liberal Democratic Party following magazine reports suggesting that money from Japanese-style pinball, called pachinko, had infiltrated politics. Tsuruo Yamaguchi, secretary general of the Socialist Party, acknowledged that nine party lawmakers had received donations from the pachinko association totaling 8 million yen (about $55,000) but said the donations were legal and none of its members acted to favor the industry.

ILLEGAL ANIMAL TRADE

The World Wide Fund for Nature said that Spain, Argentina, Thailand and Indonesia were doing too little to prevent illegal trade in endangered wildlife across their borders. A report by the conservation group presented at the U.N.-sponsored Convention on International Trade in Endangered Species in Lausanne accused the four of trading protected species ranging from parakeets to orchids. Fund official Simon Lyster said world trade in wildlife was estimated to total $5 billion of business annually.

TROUBLES AT NATO

A NATO project to build a frigate for the 1990s was torpedoed by the pull-out of three of its eight participating nations. Britain, France and Italy announced technical reasons for withdrawing, but some officials pointed to growing reluctance among the allies to commit themselves to big defense spending while East-West disarmament talks show signs of success.

BRITISH CREDIT

Small wonder that Britain's Labor Party wants credit controls. A few hours after the party launched its own affinity credit card earlier this month, the Tories raised the nation's base interest rate. Labor's Visa card is believed to be the first linked to a British political party. Labor gets 25 pence (39 cents) for every 100 (about $155) that a user charges to the card. As with other plastic in Britain's high-interest-rate environment, the Labor card, administered by Co-operative Bank, carries a stiff (in this case, 29.8%) annual rate on the unpaid balance.

THE COST OF AUSTERITY

China's year-long austerity program has achieved some successes in harnessing runaway economic growth and stabilizing prices but has failed to eliminate serious defects in state planning and an alarming drain on state budgets.

The official China Daily said retail prices of non-staple foods haven't risen since last December but acknowledged that huge government subsidies were a main factor in keeping prices down. The State Statistical Bureau found that more than 1 billion yuan ($270 million) was spent in the first half of the year for pork subsidies.

The newspaper quoted experts as saying the subsidies would cause the difference between prices and real values of commodities to "become very unreasonable" and reduce needed funds for investment in the "already difficult state budget."

The aim of the austerity measures was to slice economic growth, which soared to 20.7% last year, to 8% in 1990.Economists now predict the growth rate will be about 11.5% for the year.

POSTSCRIPTS . . .

In a sign of growing official tolerance for religion, Russian Orthodox priests were allowed to celebrate the 400th anniversary of the Moscow patriarchate in the Kremlin's 15th-century Uspensky Cathedral, where czars were crowned. . . . A 34-foot-tall, $7.7 million statue of Buddha was completed on a hill outside Hong Kong, facing China. The statue is the brainchild of Sik Chi Wan, director of the Po Lin Monastery, who said: "Hong Kong is such a prosperous place, we also need some kind of religious symbol."

It all seemed innocent enough: Last April, one Steven B. Iken visited Justin Products Inc. here, identified himself as a potential customer and got the word on the little company's new cassette players for children.

"It is almost identical to the Sony product," Mr. Iken remarked, after seeing prototypes and pictures. Replied a Justin salesman: "Exactly." The Justin merchandise carried wholesale prices some 40% below those of Sony Corp. of Japan's "My First Sony" line. The visitor waxed enthusiastic and promised to return.

But instead of a new customer -- part of a hoped-for bonanza from underselling Sony -- Justin got a costly legal morass. Mr. Iken, it turned out, was a private detective using a hidden tape recorder to gather information for Sony. His recording later turned up as a court exhibit. Seeking to keep Justin's "My Own" product line off the U.S. market, Sony last May filed a suit in Manhattan federal court accusing the upstart of trademark infringement, unfair competition and other violations of business law.

Since then, life has changed a lot for 61-year-old Leonard Kaye, Justin's owner. "I haven't been able to get a decent night's sleep since this has been going on," he says. "It's the most distracting thing in my life -- I can't even attend to my business." His company (annual sales: about $25 million) may suffer a costly blow -- losing an estimated 10% of total sales -- if Sony (annual sales: about $16 billion) prevails. Justin's plight shows what can happen when a tiny company suddenly faces the full legal might of a wrathful multinational.

With considerable irony, the case also shows how completely Japan has turned the tables on U.S. business. Americans used to complain bitterly about being undersold by look-alike products from Japan. Now Sony, whose innovative, premium-priced products are among the most admired in consumer electronics, is bitterly complaining about a little U.S. firm with a cheap look-alike produced in China.

"The gist of this is that Justin knocked off the Sony line and Sony wants to stop it," says Lewis H. Eslinger, Sony's attorney, who previously guarded Rubik's Cube. (Sony itself declines to comment.) If Sony wins, Mr. Eslinger says, its little rival will have to try to sell the products overseas. At worst, he adds, "They'd have to grind them all up and throw them away."

Mr. Kaye denies the suit's charges and says his only mistake was taking on Sony in the marketplace. "I made a similar line and I produced it cheaper," he says.

Today, U.S. Judge John E. Sprizzo is expected to rule on Sony's renewed request for a pre-trial order blocking sale of the disputed products, on which deliveries began in July. The judge turned down an earlier Sony request for such an order -- a decision upheld on appeal -- but Sony returned with additional evidence and arguments.

Though hoping to settle the case, Justin vows to fight on, if necessary. But the battle is more than Justin bargained for. "I had no idea I was getting in so deep," says Mr. Kaye, who founded Justin in 1982. Mr. Kaye had sold Capetronic Inc., a Taiwan electronics maker, and retired, only to find he was bored. With Justin, he began selling toys and electronics made mostly in Hong Kong, beginning with Mickey Mouse radios. The company has grown -- to about 40 employees, from four initially, Mr. Kaye says. Justin has been profitable since 1986, adds the official, who shares his office with numerous teddy bears, all samples from his line of plush toys.

Like many others, Mr. Kaye took notice in 1987 when Sony, in a classic example of market segmentation, changed the plastic skin and buttons on the famous Walkman line of portable audio equipment and created the My First Sony line for children. The brightly colored new products looked more like toys than the adult models. (In court papers, Sony says it has spent more than $3 million to promote the line, with resulting sales of over a million units.)

Sony found a new market niche, but Mr. Kaye figured that its prices left plenty of room for a lower-priced competitor. His products aren't exact copies of Sony's but strongly resemble them in size, shape and, especially, color. Sony uses mostly red and blue, with traces of yellow -- and so does Justin, on the theory that kids prefer these colors. ("To be successful, a product can be any color whatsoever, as long as it is fire-engine red," says Charles E. Baxley, Justin's attorney.)

By last winter, Justin was showing prototypes at toy fairs in Hong Kong and New York -- and Sony noticed. Indeed, concerned that Sony sales personnel were threatening legal action or other retaliation -- such as withholding desirable Sony products -- against Justin's customers, Mr. Baxley fired off a letter to Sony in April. He himself threatened to take the matter to the Federal Trade Commission or U.S. Justice Department. But Justin hasn't pursued those charges (which were without merit, according to Mr. Eslinger, the Sony attorney). Recalls Mr. Baxley: "Our purpose was to influence them to leave us alone. We never intended taking on Sony -- we don't have the resources."

Sony answered the empty threat with its real suit. Off and on since then, the companies have skirmished in court. And Justin, in a news release, says, "Once competitive, Sony now resorts to strong-arm tactics in American courtrooms to carve out and protect niche markets."

Sony's lawyer insists that the company's tactics -- including the use of a private detective posing as a buyer -- are routine in such matters. He also insists that Sony, no less than others, has a legal right to protect its "trade dress," in this case, mostly the colors that it claims make My First Sony products distinctive. (Justin claims it began using the same colors on electronic goods for children long before Sony entered the children's market.)

Whatever its merits, Sony's aggressive defense is debilitating for Justin. It's also costly. Mr. Kaye says he has paid more than $70,000 in legal fees so far.

Of Sony, Mr. Kaye says: "They know there's no way for them to lose. They just keep digging me in deeper until I reach the point where I give up and go away." For now, though, he vows to hang in.

@ Charles H. Tenney II, chairman of Unitil Corp., purchased 34,602 shares, or 4.9%, of Unitil's common, according to a filing with the Securities and Exchange Commission.

The stock was bought on Thursday in a privately negotiated transaction, the filing said.

As previously reported, Unitil, Exeter, N.H., and Fitchburg Gas & Electric Co., Fitchburg, Mass., are targets of unsolicited tender offers from Boston-based Eastern Utilities Associates. Eastern Utilities has offered $40 a share for Unitil and $36 a share for Fitchburg Gas and has extended both offers to Dec. 4. Both companies rejected the offers.

Dresdner Bank AG of West Germany has announced a friendly tender offer for control of Banque Internationale de Placements, a French bank whose main shareholder is France's Societe Generale, the Societe de Bourses Francaises said.

The tender offer by West Germany's second-biggest commercial bank is in two stages. Dresdner is offering to acquire 32.99% of BIP's capital for 1,015 francs ($156.82) a share. The terms of the offer put a value of 528 million francs ($81.6 million) on the 32.99% shareholding.

The Societe Generale banking group controls 18.2% of the shareholding, while Societe Generale de Belgique S.A. owns 9.69% and Financiere Tradition, a holding company, owns 5.1%.

Mexican investor Joel Rocha Garza said he sold a block of 600,000 shares of Smith Laboratories Inc. common stock to companies affiliated with him.

In a filing with the Securities and Exchange Commission, Mr. Rocha Garza said Biscayne Syndicate Inc., Lahus II Inc., and Lahus III Inc. bought the 600,000 shares on Oct. 11 for $1.4 million, or $2.375 a share.

Mr. Rocha Garza said that he, Clarendon Group Ltd., Biscayne, Lahus II, and Lahus III are all affiliated and hold a combined stake of 1,234,100 shares, or 9.33%. Mr. Rocha Garza has said he wants to purchase more shares.

In San Diego, Smith Laboratories President Timothy Wollaeger said the transfer of the shares isn't significant.

Investcorp, New York, said it and the management of Sports & Recreation Inc. bought the operator of the 10-store Sports Unlimited chain for some $40 million.

The investment bank becomes majority shareholder in Sports & Recreation, a 10-year-old sporting goods retailer, said Oliver E. Richardson, a member of Investcorp's management committee and a director of the chain.

Sports Unlimited, Tampa, Fla., posted revenue of $59 million for the year ended July 31. The company is "very profitable" on an operating basis, Mr. Richardson said, but he declined to specify numbers.

In 1982, Sports & Recreation's managers and certain passive investors purchased the company from Brunswick Corp. of Skokie, Ill. In the latest transaction, management bought out the passive investors' holding, Mr. Richardson said.

Hammond Co., Newport Beach, Calif., said Fidelity National Financial Inc. extended its previous agreement, under which it won't purchase any more of the mortgage banker's common stock, through Oct. 31.

The previous agreement expired Thursday.

Hammond said that its discussions with Fidelity, an Irvine, Calif., title-insurance underwriter, are continuing, but that prospects for a longer-term standstill agreement are uncertain.

Fidelity has increased its stake in Hammond to 23.57% in recent months. Statements made in Securities and Exchange Commission filings led Hammond to request a standstill agreement.

Giant Group Ltd. said it terminated negotiations for the purchase of Aspen Airways, a Denver-based regional carrier that operates the United Express connector service under contract to UAL Corp.'s United Airlines.

Giant, a Beverly Hills, Calif., collection of companies that is controlled by Hollywood producer Burt Sugarman, didn't give a reason for halting its plan to acquire the airline, and Aspen officials couldn't be reached for comment.

Giant agreed last month to purchase the carrier. Giant hasn't ever disclosed the proposed price, although Avmark Inc., an Arlington, Va.-based aircraft consulting concern, has valued Aspen's fleet at about $46 million.

The airline would have become the latest in a peculiar blend of Giant companies, which are involved in making cement, recycling newsprint and operating fast-food restaurants.

The state-controlled insurer Assurances Generales de France said it has obtained regulatory approval to increase its stake in the financial holding company Cie. de Navigation Mixte above 10% from the current level of about 8%.

Friday's approval was needed to conform with Bourse rules regarding companies with bank interests and follows a similar approval given Wednesday to Cie. Financiere de Paribas. Both Paribas and AGF have been increasing their stakes in Navigation Mixte recently for what they have termed "investment purposes," although the issue has been surrounded by takeover speculation in recent weeks.

AGF didn't comment officially on its reasons for seeking the approval, but people close to the group said it was done to make sure the group would have the flexibility to increase its stake in the future, should interesting price opportunities arise.

An AGF official did specify, however, that there was no foundation to recent rumors the group might be acting in concert with Paribas.

Lockheed Aeronautical Systems Co., a unit of Lockheed Corp., said it agreed to join with Aermacchi S.p.A. of Varese, Italy, to propose a new generation of jet trainers for the U.S. Air Force.

The Air Force is looking to buy 540 new primary jet trainers, with a total value of $1.5 billion to $2 billion, between 1994 and 2004. The aircraft would replace the T-37, made by the Cessna Aircraft Co. unit of General Dynamics Corp., which the Air Force uses to train jet pilots. Lockheed said the U.S. Navy may also buy an additional 340 trainer aircraft to replace its T34C trainers made by the Beech Aircraft Corp. unit of Raytheon Corp.

Under the agreement with Lockheed, Aermacchi will license Lockheed to build the Aermacchi MB-339 jet tandem-trainer and will supply certain structures. Lockheed will build additional structures and perform final assembly of the tandem-seat trainer at its Marietta, Ga., plant should the Air Force order the craft.

A Lockheed spokesman in Burbank, Calif., said he wasn't aware of which other companies would be competing for the Air Force contract.

Striking auto workers ended their 19-day occupation of a metal shop at a Peugeot S.A. factory in eastern France Friday as pay talks got under way in the capital.

But the Peugeot breakthrough came as a nationwide dispute by Finance Ministry employees disrupted border checkpoints and threatened the government's ability to pay its bills.

The Peugeot metalworkers began filing out of the shop, which makes auto parts, at the plant in Mulhouse after voting 589 to 193 to abandon the occupation.

Their withdrawal was based on promises by Peugeot to open negotiations in Paris at the same time the last man left the premises.

The strike by customs officers, tax collectors, treasury workers and other civil servants attached to the Ministry of Finance may pose a more serious challenge to the government and the average Frenchman. Ministry employees complain that they are poorly paid because of a complex job-rating system they say fails to take into account their education and level of technical expertise.

The market for $200 billion of high-risk junk bonds, battered by a succession of defaults and huge price declines this year, practically vanished Friday.

Trading ground to a halt as investors rushed to sell bonds, only to find themselves deserted by potential buyers. Stunned, they watched brokerage houses mark down price quotations on their junk holdings while being able to execute very few actual trades.

"The junk bond market is in a state of gridlock now -- there are no bids, only offers," says independent investor Martin D. Sass, who manages nearly $4 billion and who recently decided to buy distressed securities for a new fund. This calamity is "far from over," he says.

Junk's collapse helped stoke the panicky selling of stocks that produced the deepest one-day dive in the Dow Jones Industrial Average since the Oct. 19, 1987, crash. Simultaneously, it also helped trigger this year's biggest rally in the U.S. government bond market as investors rushed to move capital into the highest-quality securities they could find.

But "an eerie silence pervaded" the junk market Friday as prices tumbled on hundreds of high-yield bonds despite "no active trading," says John Lonski, an economist at Moody's Investors Service Inc. For example, the price of Southland Corp.'s $500 million of 16 3/4% bonds due 2002 -- sold less than two years ago by Goldman, Sachs & Co. -- plummeted 25% to just 30 cents on the dollar. But not even Goldman would make a market in the securities of Southland, the owner of the nationwide chain of 7-11 convenience stores that is strapped for cash. Goldman officials declined to comment.

Junk bonds, which mushroomed from less than $2 billion at the start of this decade, have been declining for months as issuer after issuer sank beneath the weight of hefty interest payments. The shaky market received its biggest jolt last month from Campeau Corp., which created its U.S. retailing empire with junk financing. Campeau developed a cash squeeze that caused it to be tardy on some interest payments and to put its prestigious Bloomingdales department-store chain up for sale.

Now, dozens of corporations, including Ethan Allen, TW Services and York International, that are counting on at least $7 billion of scheduled new junk financings to keep their highly leveraged takeovers and buy-outs afloat, may never get the money. "The music has stopped playing," says Michael Harkins, a principal in the investment firm of Levy Harkins. "You've either got a chair or you don't."

In Friday's aftermath, says R. Douglas Carleton, a director of high-yield finance at First Boston Corp., "much of the $7 billion forward calendar could be deferred, depending on the hysteria." In August, First Boston withdrew a $475 million junk offering of Ohio Mattress bonds because potential buyers were "very skittish."

The outlook "looks shaky because we're still waiting" for mutual funds, in particular, to dump some of their junk bond holdings to pay off redemptions by individual investors, says King Penniman, senior vice president at McCarthy, Crisanti & Maffei, an investment arm of Xerox Financial Services. Indeed, a Moody's index that tracks the net asset values of 24 high-yield mutual funds declined for the 17th consecutive day Friday.

In a stark contrast, the benchmark 30-year Treasury bond climbed more than 2 1/2 points, or about $25 for each $1,000 face amount, to 103 12/32, its biggest gain of the year. The bond's yield dropped to 7.82%, the lowest since March 31, 1987, according to Technical Data Global Markets Group. The yield on three-month Treasury bills, considered the safest of all investments, plummeted about 0.7 percentage point to 7.16%, the largest one-day decline since 1982.

The main catalyst for government bond market rally was the 190.58-point drop in the Dow Jones Industrial Average. "When you get panic in one market, you get flight to quality in the other," said Maria Ramirez, money market economist at Drexel Burnham Lambert Inc.

Nevertheless, the problems of the junk market could prompt the Federal Reserve to ease credit in the months ahead. "This marks a significant shift in the interest rate outlook," says William Sullivan, director of money market research at Dean Witter Reynolds Inc., New York.

Any sustained credit-easing could be a lift for junk bonds as well as other securities. Robert Dow, a partner and portfolio manager at Lord, Abbett & Co., which manages $4 billion of high-yield bonds, says he doesn't "think there is any fundamental economic rationale {for the junk bond rout}. It was herd instinct."

He adds: "The junk market has witnessed some trouble and now some people think that if the equity market gets creamed that means the economy will be terrible and that's bad for junk. I don't believe that's the case, but I believe that people are running scared. There is a flight to quality, and the quality is not in equities and not in junk -- it's in Treasurys."

Even as trading in high-yield issues dried up over the past month, corporations sold more than $2 billion of new junk bonds. For example, a recent $375 million offering of Petrolane Gas Services L.P. bonds sold by First Boston was three times oversubscribed. A $550 million offering of Turner Broadcasting System Inc. high-yield securities sold last week by Drexel was increased $50 million because of strong demand.

First Boston estimates that in November and December alone, junk bond investors will receive $4.8 billion of coupon interest payments. "That's a clear indication that there is and will be an undercurrent of basic business going on," says Mr. Carleton of First Boston.

"I don't know how people can say the junk bond market disappeared when there were $1.5 billion of orders for $550 million of junk bonds sold last week by Turner," says Raymond Minella, co-head of merchant banking at Merrill Lynch & Co. "When the rally comes, insurance companies will be leading it because they have billions to invest and invest they will. There is plenty of money available from people who want to buy well-structured deals; it's the stuff that's financed on a shoestring that people are wary of."

But such highly leveraged transactions seemed to have multiplied this year, casting a pall over much of the junk market. Michael McNamara, director of fixed-income research at Kemper Financial Services, says the quality of junk issues has been getting poorer, contributing to the slide in prices.

"Last year we probably bought one out of every three new deals," he says. "This year, at best, it's in one in every five or six. And our credit standards haven't changed one iota." However, Mr. McNamara said the slide in junk is creating "one hell of a buying opportunity" for selective buyers.

For the moment, investors seem more preoccupied with the "bad" junk than the "good" junk. "The market has been weak since" the announcement of the Campeau cash squeeze and the company's subsequent bailout by Olympia & York, says Mr. Minella of Merrill Lynch. "That really affected the market in that people started to ask 'What else is in trouble?'"

Well before Campeau, though, there were signs that the junk market was stumbling through one of its worst years ever. Despite the relatively strong economy, junk bond prices did nothing except go down, hammered by a seemingly endless trail of bad news:

-- In June, two months before it would default on interest payments covering some of its $1.2 billion of speculative debt securities, New York-based Integrated Resources Inc. said it ran out of borrowed money.

-- In July, Southmark Corp., the Dallas-based real estate and financial services company with about $1.3 billion of junk bonds, voluntarily filed for protection under U.S. bankruptcy law. -- By the end of July, the difference in yield between an index of junk bonds and seven-year Treasury notes widened to more than 5.5 percentage points.

-- In August, Resorts International Inc., which sold more than $500 million of junk bonds, suspended interest payments.

-- In September, just as the cash squeeze hit Campeau, Lomas Financial Corp. defaulted on $145 million of notes and appeared unlikely to pay interest on a total of $1.2 billion of debt securities.

Meantime, regulators are becoming increasingly worried as the rush to leverage shows no signs of abating. Moody's says the frequency of corporate credit downgrades is the highest this year since 1982. In addition, there are six times as many troubled banks as there were in the recession of 1981, according to the Federal Deposit Insurance Corp.

"The era of the 1980s is about compound interest and the reaching for it," says James Grant, editor of Grant's Interest Rate Observer, an early critic of the junk bond market. "What we've begun to see is the damage to businesses of paying exorbitant compound interest. Businesses were borrowing at interest rates higher than their own earnings. What we're seeing now is the wrenching readjustment of asset values to a future when speculative-grade debt will be hard to obtain rather than easy."

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Friday's Market Activity

Prices of Treasury bonds surged in the biggest rally of the year as investors fled a plummeting stock market.

The benchmark 30-year Treasury bond was quoted 6 p.m. EDT at 103 12/32, compared with 100 27/32 Thursday, up 2 1/2 points. The yield on the benchmark fell to 7.82%, the lowest since March 31, 1987, according to Technical Data Global Markets Group.

The "flight to quality" began late in the day and followed a precipitous fall in the stock market. Treasurys opened lower, reacting negatively to news that the producer price index -- a measure of inflation on the wholesale level -- accelerated in September. Bond prices barely budged until midday.

Many bond market participants will be closely eying the action of the Federal Reserve, which might repeat its October 1987 injection of huge amounts of liquidity to buoy the financial markets and keep the economy from slowing into a recession.

Prices of municipals, investment-grade corporates and mortgage-backed bonds also rose, but lagged behind their Treasury counterparts.

Mortgage securities rose in hectic trading, with most of the activity concentrated in Government National Mortgage Association 9% coupon securities, the most liquid mortgage issue.

The Ginnie Mae November 9% issue ended at 98 25/32, up 7/8 point on the day, to yield about 9.28% to a 12-year average life assumption.

Investment-grade corporate bonds were up about 1/2 to 3/4 point. But the yield spread between lower-quality, investment-grade issues and higher-quality bonds widened.

And the yields on telephone and utility issues rose relative to other investment-grade bonds in anticipation of this week's $3 billion bond offering by the Tennessee Valley Authority.

Despite rumors that the TVA's long-awaited offering would be postponed because of the debacle in the equity markets, sources in the underwriting syndicate said they expect the issue will be priced as scheduled.

One of the sources said the smaller portions of $750 million each of five-year and 10-year bonds have already been "substantially oversubscribed."

Municipal bonds rose as much as 3/4 point.

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Roger Lowenstein contributed to this article.

Friday's 190-point plunge in stocks does not come atop the climate of anxiety that dominated financial markets just prior to their 1987 October crash, and mechanisms have been put in place to keep markets more orderly. Still, the lesson is about the same: On Friday the 13th, the market was spooked by Washington.

The consensus along the street seems to be that the plunge was triggered by the financing problems of the UAL takeover, and it's certainly true the rout began immediately after the UAL trading halt. Still, the consensus seems almost as wide that one faltering bid is no reason to write down the value of all U.S. business. This observation leads us to another piece of news moving on the Dow Jones ticker shortly before the downturn: the success of Senate Democrats in stalling the capital gains tax cut.

The real value of all shares, after all, is directly impacted by the tax on any profits (all the more so given the limits on deductions for losses that show gains are not "ordinary income"). And market expectations clearly have been raised by the capital gains victory in the House last month. An hour before Friday's plunge, that provision was stripped from the tax bill, leaving it with $5.4 billion in tax increases without a capital gains cut.

There is a great deal to be said, to be sure, for stripping the garbage out of the reconciliation bill. It would be a good thing if Congress started to decide issues one-by-one on their individual merits without trickery. For one thing, no one doubts that the capital gains cut would pass on an up-or-down vote. Since Senate leaders have so far fogged it up with procedural smokescreens, promises of a cleaner bill are suspect. Especially so since President Bush has been weakened by the Panama fiasco.

To the extent that the UAL troubles contributed to the plunge, they are another instance of Washington's sticky fingers. As the best opportunities for corporate restructurings are exhausted of course, at some point the market will start to reject them. But the airlines are scarcely a clear case, given anti-takeover mischief by Secretary of Transportation Skinner, who professes to believe safety will be compromised if KLM and British Airways own interests in companies that fly airplanes.

Worse, Congress has started to jump on the Skinner bandwagon. James Oberstar, the Minnesota Democrat who chairs the Public Works and Transportation Committee's aviation subcommittee, has put an anti-airline takeover bill on supersonic speed so that it would be passed in time to affect the American and United Air Lines bids. It would give Mr. Skinner up to 50 days to "review" any bid for 15% or more of the voting stock of any U.S. carrier with revenues of $1 billion or more. So the UAL deal has problems, and the market loses 190 points. Congratulations, Mr. Secretary and Mr. Congressman.

In the 1987 crash, remember, the market was shaken by a Danny Rostenkowski proposal to tax takeovers out of existance. Even more important, in our view, was the Treasury's threat to thrash the dollar. The Treasury is doing the same thing today; thankfully, the dollar is not under 1987-style pressure.

Also, traders are in better shape today than in 1987 to survive selling binges. They are better capitalized. They are in less danger of losing liquidity simply because of tape lags and clearing and settlement delays. The Fed promises any needed liquidity. The Big Board's liaison with the Chicago Board of Trade has improved; it will be interesting to learn if "circuit breakers" prove to be a good idea. In any event, some traders see stocks as underpriced today, unlike 1987.

There is nothing wrong with the market that can't be cured by a little coherence and common sense in Washington. But on the bearish side, that may be too much to expect.

First Chicago Corp. posted a third-quarter loss of $23.3 million after joining other big banks in further adding to its reserves for losses on foreign loans.

The parent company of First National Bank of Chicago, with $48 billion in assets, said it set aside $200 million to absorb losses on loans and investments in financially troubled countries. The addition, on top of two big 1987 additions to foreign-loan reserves, brings the reserve to a level equaling 79% of medium-term and long-term loans outstanding to troubled nations.

First Chicago since 1987 has reduced its loans to such nations to $1.7 billion from $3 billion.

Despite this loss, First Chicago said it doesn't need to sell stock to raise capital. During the quarter, the company realized a pretax gain of $60.4 million from the sale of its First Chicago Investment Advisors unit.

Combined foreign exchange and bond trading profits dipped 24% against last year's third quarter, to $38.2 million from $50.5 million. Gains from First Chicago's venture capital unit, a big leveraged buy-out investor, rose 32% to $34 million from $25.7 million a year ago.

Interest income and most fee income was strong.

Greece's second bout of general elections this year is slated for Nov. 5. For those hoping to see a modicum of political normalcy restored -- in view of Greece's eight-year misadventure under autocratic pseudosocialism and subsequent three-month hitch with a conservative-communist coalition government -- there is but one bright sign: The scandals still encircling former Prime Minister Andreas Papandreou and his fallen socialist government are like flies buzzing around a rotting carcass.

In the mid-June round of voting, Greeks gave no clear mandate to any single political party. The ad interim coalition government that emerged from post-electoral hagglings was, in essence, little more than the ill-conceived offspring of ideological miscegenation: On one side, the center-right New Democracy Party, headed by Constantine Mitsotakis. On the other, the so-called Coalition of the Left and Progress -- a quaint and rather deceptive title for a merger of the pro-Soviet Communist Party of Greece and its Euro-Communist cousin, the Hellenic Left.

The unifying bond for this left-right mismatch was plain: PASOK (Mr. Papandreou's party) as common political enemy. The ostensible goal was a mop-up of government corruption, purportedly at all levels, but the main marks were Mr. Papandreou and his closest associates. In point of fact, this catharsis was overdue by decades. When reduced to buzzword status in ex parte pledges, however, the notion transmogrified into a promised assault, with targets primarily for political gains, not justice.

With regard to Greece's long-bubbling bank-looting scandal, Mr. Papandreou's principal accuser remains George Koskotas, former owner of the Bank of Crete and self-confessed embezzler, now residing in a jail cell in Salem, Mass., from where he is fighting extradition proceedings that would return him to Greece. Mr. Koskotas's credibility is, at best, problematic. He has ample motive to shift the blame, and his testimony has also been found less than forthright on numerous points. Nevertheless, the New Democracy and Communist parties herald his assertions as proof of PASOK complicity.

Among unanswered questions are whether Mr. Papandreou received $23 million of stolen Bank of Crete funds and an additional $734,000 in bribes, as contended; whether the prime minister ordered state agencies to deposit some $57 million in Mr. Koskotas's bank and then skim off the interest; and, what PASOK's cut was from the $210 million Mr. Koskotas pinched.

Two former ministers were so heavily implicated in the Koskotas affair that PASOK members of Parliament voted to refer them to the special court. But eluding parliamentary probe was the case of millions of drachmas Mr. Koskotas funneled into New Democracy coffers. In the end, the investigation produced only circumstantial evidence and "indications" that point to PASOK, not clinching proof.

On another issue, Greeks were told how their national intelligence agency, the EYP, regularly monitored the telephone conversations of prominent figures, including key opposition politicians, journalists and PASOK cabinet members. Despite convincing arguments, it was never established that Mr. Papandreou personally ordered or directed the wiretaps.

The central weakness of the "scandals" debates was pointed up especially well when discussions focused on arms deals and kickbacks. The coalition government tried to show that PASOK ministers had received hefty sums for OKing the purchase of F-16 Fighting Falcon and Mirage 2000 combat aircraft, produced by the U.S.based General Dynamics Corp. and France's Avions Marcel Dassault, respectively. Naturally, neither General Dynamics nor Dassault could be expected to hamper its prospective future dealings by making disclosures of sums paid (or not) to various Greek officials for services rendered.

So it seems that Mr. Mitsotakis and his communist chums may have unwittingly served Mr. Papandreou a moral victory on a platter: PASOK, whether guilty or not, can now traipse the countryside condemning the whole affair as a witch hunt at Mr. Papandreou's expense. But while verbal high jinks alone won't help PASOK regain power, Mr. Papandreou should never be underestimated. First came his predictable fusillade: He charged the Coalition of the Left and Progress had sold out its leftist tenets by collaborating in a right-wing plot aimed at ousting PASOK and thwarting the course of socialism in Greece.

Then, to buttress his credibility with the left, he enticed some smaller leftist parties to stand for election under the PASOK banner. Next, he continued to court the communists -- many of whom feel betrayed by the left-right coalition's birth -- by bringing into PASOK a well-respected Communist Party candidate. For balance, and in hopes of gaining some disaffected centrist votes, he managed to attract a former New Democracy Party representative and known political enemy of Mr. Mitsotakis. Thus PASOK heads for the polls not only with diminished scandal-stench, but also with "seals of approval" from representatives of its harshest accusers.

Crucial as these elections are for Greece, pressing issues of state are getting lost in the shuffle. The country's future NATO participation remains unsure, for instance. Greece also must revamp major pieces of legislation in preparation for the 1992 targets of heightened Common Market cooperation. Greece's bilateral relations with the U.S. need attention soon as well. For one, the current accord concerning U.S. military bases in Greece lapses in May 1990. Negotiations for a new agreement were frozen before the June elections, but the clock is running.

Another matter of concern is the extradition of Mohammed Rashid, a Palestinian terrorist who is wanted in the U.S. for the 1982 bombing of a Pan American Airways flight. The Greek courts have decided in favor of extradition in the Rashid case, but the matter awaits final approval from Greece's next justice minister. The Greeks seem barely aware of the importance of the case as a litmus test of whether Greece will be counted in or out for international efforts to combat terrorism.

That PASOK could win the elections outright is improbable; the Greek press, previously eager to palm off PASOK's line, has turned on Mr. Papandreou with a wild-eyed vengeance. Yet the possibility of another lash-up government is all too real. If Mr. Papandreou becomes the major opposition leader, he could hamstring a conservative-led coalition. Also, he could force new elections early next year by frustrating the procedures for the election of the president of the republic in March.

New Democracy has once again glaringly underestimated the opponent and linked its own prospects to negative reaction against PASOK, forgetting to tend to either program clarity or the rectification of internal squabbles.

As for Mr. Papandreou? He's not exactly sitting pretty at this stage. But since he is undoubtedly one of the most proficient bull slingers who ever raked muck, it seems far wiser to view him as sidelined, but certainly not yet eliminated.

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Mr. Carpenter, a regional correspondent for National Review, has lived in Athens since 1981.

U.S. OFFICIALS MOVED to head off any repeat of Black Monday today following Friday's plunge in stock prices. Fed Chairman Greenspan signaled that the central bank was prepared to inject massive amounts of money into the banking system to prevent a financial crisis. Other U.S. and foreign officials also mapped out plans, though they kept their moves quiet to avoid making the financial markets more jittery.

Friday's sell-off was triggered by the collapse of UAL's buy-out plan and a big rise in producer prices. The Dow Jones industrials skidded 190.58, to 2569.26. The junk bond market came to a standstill, while Treasury bonds soared and the dollar fell.

Japanese stocks dropped early Monday, but by late morning were turning around. The dollar was trading sharply lower in Tokyo.

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Prospects for a new UAL buy-out proposal appear bleak. Many banks refused to back the $6.79 billion transaction, but bankers said it was not from any unwillingness to finance takeovers. The decision was based solely on problems with the UAL management-pilot plan, they said.

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The surge in producer prices in September followed three months of declines, but analysts were divided on whether the 0.9% jump signaled a severe worsening of inflation. Also, retail sales grew 0.5% last month.

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A capital-gains tax cut was removed from the Senate's deficit reduction bill, but proponents still hope to enact the cut this year. Bush won't press for a capital-gains provision in the final deficit bill when House-Senate conferees meet later this week.

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General Motors signaled that up to five North American assembly plants may close by the mid-1990s as it tries to cut excess capacity.

U.S. car and truck sales fell 12.6% in early October, the first sales period of the 1990-model year, dragged down by a sharp decline in GM sales.

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Warner and Sony are entangled in a legal battle over movie producers Peter Gruber and Jon Peters. The fight could set back Sony's plans to enter the U.S. movie business.

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Hooker's U.S. unit received a $409 million bid for most of its real-estate and shopping-center assets from an investor group. The offer doesn't include Bonwit Teller or B. Altman.

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The Boeing strike is starting to affect airlines. America West said Friday it will postpone its new service out of Houston because of delays in receiving aircraft from Boeing.

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Saatchi & Saatchi would launch a management buy-out if a hostile suitor emerged, an official said.

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British Aerospace and France's Thomson-CSF are nearing a pact to merge guided-missile divisions.

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New U.S. steel-import quotas will give a bigger share to developing nations that have relatively unsubsidized steel industries. Japan's steel quota will be cut significantly.

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Four ailing S&Ls were sold off by government regulators, but low bids prevented the sale of a fifth.

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Markets --

Stocks: Volume 251,170,000 shares. Dow Jones industrials 2569.26, off 190.58; transportation 1406.29, off 78.06; utilities 211.96, off 7.29.

Bonds: Shearson Lehman Hutton Treasury index 3421.29, up 51.60.

Commodities: Dow Jones futures index 129.87, up 0.01; spot index 129.25, up 0.28.

Dollar: 142.10 yen, off 2.07; 1.8740 marks, off 0.0343.

A federal appeals court in San Francisco ruled that shareholders can't hold corporate officials liable for false sales projections on new products if the news media concurrently revealed substantial information about the product's flaws.

The ruling stems from a 1984 suit filed by shareholders of Apple Computer Inc., claiming that company officials misled investors about the expected success of the Lisa computer, introduced in 1983.

Lawyers specializing in shareholder suits said they are concerned that use of the "press defense" by corporations may become popular as a result of the ruling.

According to the suit, Apple officials created public excitement by touting Lisa as an office computer that would revolutionize the workplace and be extremely successful in its first year. The plaintiffs also alleged that prior to the fanfare, the company circulated internal memos indicating problems with Lisa.

The suit claimed Apple's stock climbed to a high of $63.50 a share on the basis of the company's optimistic forecasts. But when the company revealed Lisa's poor sales late in 1983, the stock plummeted to a low of $17.37 a share, according to the suit. The shareholders claimed more than $150 million in losses.

In 1987, the San Francisco district court dismissed the case largely because newspaper reports had sufficiently counterbalanced the company's statements by alerting consumers to Lisa's problems.

Late last month, the appeals court agreed that most of the case should be dismissed. However, it gave the shareholders the right to pursue a small portion of their claim that pertains to Lisa's disk drive, known as Twiggy. The court ruled that the news media didn't reveal Twiggy's problems at the time.

Lawyers are worried about the ruling's implication in other shareholder suits but pointed out that the court stressed that the ruling should be regarded as very specific to the Apple case.

"The court was careful to say that the adverse information appeared in the very same articles and received the same attention as the company's statements," said Patrick Grannon, a Los Angeles lawyer at the firm of Greenfield & Chimicles, which wasn't involved in the case. "The court is saying that the adverse facts have to be transferred to the market with equal intensity and credibility as the statements of corporate insiders."

Shareholders' attorneys at the New York firm of Milberg, Weiss, Bershad, Specthrie & Lerach last week petitioned for a rehearing of the case. They wrote: "The opinion establishes a new rule of immunity -- that if a wide variety of opinions on a company's business are publicly reported, the company can say anything without fear of securities liability."

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NFL ORDERED to pay $5.5 million in legal fees to defunct USFL.

The National Football League is considering appealing the ruling stemming from the U.S. Football League's largely unsuccessful antitrust suit against the NFL.

A jury in 1986 agreed with the USFL's claims that the NFL monopolized major league football. But the jury awarded the USFL only $1 in damages, trebled because of the antitrust claims.

Last week, the U.S. Court of Appeals in New York upheld a $5.5 million award of attorneys fees to the defunct league. Harvey D. Myerson, of Myerson & Kuhn, then of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, was the lead trial lawyer, and his new firm pursued the application appeal. Douglas R. Pappas of Myerson & Kuhn says about $5.3 million of the award goes directly to the USFL to reimburse it for fees already paid. Myerson & Kuhn will get about $260,000 for the costs of pressing the application.

The federal appeals court held that the nominal damages and the failure to prove all claims didn't exclude the USFL from being reimbursed. Antitrust laws provide that injured parties may be reimbursed for lawyers' fees.

But Shepard Goldfein, an attorney for the NFL, says his client will consider asking for another hearing or appealing to the U.S. Supreme Court. Mr. Goldfein, of Skadden, Arps, Slate, Meagher & Flom in New York, says the ruling is wrong and the fee award is excessive because the USFL lost its major claims, including its contention that the NFL restrained trade through television contracts.

"The USFL was not the prevailing party," Mr. Goldfein insists.

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HOUSTON-CALGARY ALLIANCE: Fulbright & Jaworski of Houston and Fenerty, Robertson, Fraser & Hatch of Calgary, Alberta, are affiliating to help serve their energy-industry clients. The affiliation is believed to be the first such cross-border arrangement among major law firms. The firms aren't required to refer work exclusively to each other and remain separate organizations. But they will work together on energy-, environmental- and fair-trade-related issues and conduct seminars on topics of mutual interest, said Gibson Gayle Jr. of 585-lawyer Fulbright & Jaworski. In addition, Fulbright & Jaworski's Washington, D.C., office will play a key role as the firms work together on regulatory issues, particularly natural-gas exports, for their clients. The arrangement, reached after about eight months of negotiations, grew out of 80-lawyer Fenerty Robertson's desire to develop ties with a U.S. firm in light of relaxed trade barriers between the U.S. and Canada, said Francis M. Saville of Fenerty Robertson.

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IN WHAT MAY SIGNAL a turnaround for asbestos manufacturers, W.R. Grace & Co. won a 3 1/2-week trial in Pittsburgh over whether it should be required to remove asbestos fireproofing from a local high school. Mount Lebanon High School, near Pittsburgh, sought $21 million in compensatory damages from Grace, arguing that the asbestos, which can cause respiratory diseases and lung cancer, posed a risk to students. Grace successfully contended that removing the fire retardant would pose a greater health risk than leaving it alone. A spokesman for the company said the verdict is thought to be the first in favor of an asbestos manufacturer where the plaintiff was a school and the asbestos in question was used for fireproofing.

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FCC COUNSEL JOINS FIRM: Diane S. Killory will join 500-lawyer Morrison & Foerster as a partner in its Washington, D.C., office in mid-November. She will help develop the mass-media practice of the San Francisco-based firm's communications group. Ms. Killory, 35 years old, resigned as Federal Communications Commission general counsel early this month after nearly three years in that post. She was the first woman to be appointed FCC general counsel.

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RICHARD P. MAGURNO, formerly Eastern Airlines' top lawyer, joined the New York law firm of Lord Day & Lord, Barrett Smith as a partner. Mr. Magurno, 45, spent 17 years at the Miami airline unit of Houston-based Texas Air Corp. and was named general counsel in 1984. He left the company in 1987. Mr. Magurno said he will split his time between the 200-lawyer firm's offices in Washington, D.C., and New York, with specialties in aviation and labor law.

Apple Computer Inc. said it will offer cash rebates on several of its machines from Oct. 14 to Dec. 31., as part of a holiday-season sales promotion.

Apple will offer a $150 rebate on its Apple IIGS with any Apple Monitor and disk drive; $200 on the basic Macintosh Plus central processing unit; $250 on the Macintosh SE central processing unit; $250 on the Macintosh SE/30 cpu, and $300 on a Macintosh IIcx with any Apple video card and Apple monitor. The rebates, as a percentage of the retail cost of the cpu of each system, amount to 6% to 13%.

The company is also offering a free trial of its computers to consumers who qualify for its credit cards or leases.

Matsushita Electric Industrial Co. of Japan and Siemens AG of West Germany announced they have completed a 100 million-mark ($52.2 million) joint venture to produce electronics parts.

In the venture's first fiscal year, Siemens will hold 74.9% of the venture and a Matsushita subsidiary, Matsushita Electronic Components Co., 25.1%.

A basic agreement between the two companies was announced in June.

The new company is to be called Siemens Matsushita Components G.m.b.H. It will have its headquarters in Munich.

Matsushita's share in the venture will rise to 35% Oct. 1, 1990, and to 50% the following Oct. 1. Siemens will retain majority voting rights.

The parent companies forecast sales for the venture of around 750 million marks for its first fiscal year, Matsushita said. Sales are expected to rise to one billion marks after four years. The company will have production facilities in West Germany, Austria, France and Spain.

Roger Rosenblatt, editor of U.S. News & World Report, resigned Friday from the weekly news magazine.

Mr. Rosenblatt said he resigned because of difficulties with commuting between his home in New York and the magazine's editorial offices in Washington. "Frankly, I missed my family," said Mr. Rosenblatt.

In Mr. Rosenblatt's tenure, the magazine's advertising pages and circulation have grown significantly. But at 2.3 million weekly paid circulation, U.S. News still ranks third behind Time Warner Inc.'s Time magazine, with 4.4 million circulation, and Washington Post Co.'s Newsweek, with 3.3 million circulation.

Mortimer B. Zuckerman, chairman and editor in chief, said Mr. Rosenblatt would be succeeded starting today by Michael Ruby, the magazine's executive editor, and Merrill McLoughlin, a senior writer. Mr. Ruby and Ms. McLoughlin are married to each other. Mr. Zuckerman said his magazine would maintain its editorial format, which is a mix of analysis and trend stories with service-oriented, how-to articles.

Mr. Rosenblatt, a senior writer at Time magazine before joining U.S. News & World Report, said he had numerous job offers from other magazines while he was editor. The offers were to work as a writer, not an editor. He said he will now consider those offers.

Avions Marcel Dassault-Breguet Aviation S.A. said group profit before taxes and contributions to employee profit-sharing soared 97% to 839 million francs ($129.6 million) in the first half of 1989 from 425 million francs a year earlier.

The French aircraft group pointed out, however, that financial results from its sector of industry are frequently erratic because of irregular cash flow from large contracts.

It noted, for example, that group revenue for the first half was 8.734 billion francs, down about 12% from 9.934 billion francs a year earlier. Still, it said it expects sales for all of 1989 to be on the order of 20 billion francs, reflecting anticipated billings for two large contracts in the second half of the year.

For all of 1988, Dassault had group profit of 428 million francs on revenue of 18.819 billion francs. The group hasn't yet released earnings figures for the first half of 1989, nor has it made a detailed forecast of its full-year earnings.

Keystone Consolidated Industries Inc. expects to report earnings before extraordinary tax benefits of about $1.5 million, or about 41 cents a share, for the third quarter, compared with a loss last year, said Glenn R. Simmons, chairman and chief executive officer.

After a tax benefit of about $780,000, Keystone expects to report net income of $2.3 million, or about 62 cents a share, Mr. Simmons said. For third quarter last year, Keystone reported a $1 million loss from continuing operations and a $200,000 loss from discontinued operations, for a net loss of $1.2 million.

Revenue for the latest third quarter was about $70.5 million, up 10% from $63.6 million last year, he said.

Mr. Simmons said the results signal a turnaround for the maker of wire and wire products, which has struggled to remain competitive in the face of lower-priced, imported steel. A new $46 million steel rod minimill, which got off to a rocky start in early 1988, now is running efficiently and a new management team is more heavily marketing Keystone's products, Mr. Simmons said.

As a result, the company hopes to report net income for the year of about $11.6 million, or about $3.10 to $3.15 a share, compared with a net loss of $24.4 million last year, after a loss from discontinued operations of $18.4 million. Revenue for 1989 is expected to be about $300 million, up about 21% from $247.3 million in 1988.

For the nine months ended Sept. 30, Keystone expects to report net income of $9.3 milion, or about $2.53 a share, after an extraordinary gain from $3.2 million in tax benefits. Last year, the company had a net loss of $6.5 million, including a $6.1 million loss from continuing operations and a $400,000 loss from discontinued operations. Revenue for the nine months is expected to be about $230.5 million, up about 21% from $190.4 million last year.

Mr. Simmons said Keystone's new mill is expected to produce about 585,000 tons of steel rods this year, up from 413,000 tons in 1988. Production at the mill has exceeded the ability of Keystone's casting operation to supply it, he said, which will force Keystone to purchase billet, or unfinished steel bars, from outside the company during the fourth quarter and next year.

Keystone will have to consider expanding its casting operation, at an estimated cost of $8 million to $10 million, within the next 18 to 24 months, Mr. Simmons said.

Under Robert W. Singer, who was named president and chief operating officer last year, Keystone has expanded its sales force to about 20 people from about 15 and hopes to expand its sales from the middle portion of the country toward the East and West coasts.

"Prior to a year ago, Keystone was an order-taker. Now I think we have a group of marketing people who are out selling to retailers and wholesalers," Mr. Simmons said.

Still, he said, the 100-year-old company plans to continue its premium-priced strategy for its distinctive brand of red-tipped wire fencing and other products. The company claims a 40% share of the U.S. field fence business, a 35% share of poultry netting sales and a 30% share of barbed wire sales.

Freeport-McMoRan Inc. said a temporary cessation of operations at its Sunshine Bridge uranium-recovery facility in Donaldsonville, La., will result in slight earnings improvement to both the company and its Freeport-McMoRan Resource Partners Limited Partnership unit. The company didn't elaborate.

The diversified energy and minerals concern said that a depressed uranium market is responsible for the temporary mothballing of the plant, but that the plant can be reactivated quickly when the market improves. More than 400,000 pounds of uranium a year have been produced at the facility during the past seven years. A second uranium-recovery plant at Uncle Sam, La., that produces more than 700,000 pounds of uranium annually, will continue to operate.

Freeport-McMoRan said the shutdown won't affect sales volumes under long-term sales contracts of its Freeport Uranium Recovery Co. unit, but will reduce the amount of product sold on the spot market. Freeport-McMoRan Resource Partners, as owner of the uranium-recovery technology, receives royalty payments.

Business Week subscribers may hear this week's issue talking back to them.

A four-page ad from Texas Instruments Inc., running in approximately 140,000 issues of the Oct. 20 "Corporate Elite" issue of the McGraw-Hill Inc. publication, contains a speech synthesizer laminated between two of the pages. Readers who pull off a piece of tape and press a switch will hear a tiny -- but distinctly human-sounding -- voice announce, "I am the talking chip," as it launches into a 15-second discourse on its own attributes.

The talking chip isn't cheap -- the per-ad cost to Texas Instruments is about $4, and that's without adding in Business Week's charge -- but Texas Instruments believes it is a first. Previous efforts have included musical ads, featuring simple tone-generating chips that play a tune, but the voice synthesizer in this effort is much more sophisticated, with none of the robotic flatness that one hears, for example, when calling telephone directory services.

And for those who miss the message the first time around, not to worry: Three tiny batteries provide enough juice for as many as 650 replays.

Lomas Financial Corp., Dallas, said it will ask a U.S. bankruptcy court to allow it to hire Lazard Freres & Co. to help it sell its leasing unit.

Lomas, assisted by Merrill Lynch Capital Markets, has been trying to sell its Equitable Lomas Leasing Co. for several months, apparently without success.

The real estate and mortgage banking concern had hoped to use proceeds from the sale to reduce its debt. Without cash from asset sales and unable to reach a new bank-credit agreement, Lomas defaulted on $145 million in notes that became due Sept. 1. It filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code Sept. 24 to give it additional time to work on a plan to restructure its $1.45 billion in senior debt.

Lomas said Merrill Lynch, which owns bonds and equity in Lomas, couldn't continue as Lomas's investment banker because it is also a creditor. It said it chose Lazard in part because of Lazard's offices in Europe and Japan, where investors might be interested in a U.S. leasing company.

Canadian Imperial Bank of Commerce said it will increase its loan-loss provisions to cover all its loans to lesser developed countries, except Mexico, resulting in an after-tax charge to 1989 earnings of 300 million Canadian dollars (US$255 million).

Don Bowder, senior vice president and chief accountant, said the bank's strong earnings enable it to be the first major Canadian bank to set aside provisions covering all its C$1.17 billion in non-Mexican LDC debt.

"It eliminates the continuing uncertainty with respect to the ultimate value of the loans," he said.

The bank said about C$525 million will be added to its existing LDC and general loss provisions in its fourth quarter, ending Oct. 31. Mr. Bowder said the C$300 million charge to earnings would amount to about C$1.34 a share. The bank's net income for the nine months ended July 31 was C$577 million, or C$3.10 a share.

Mr. Bowder said the bank will restructure its C$604 million of Mexican debt, of which C$255 million is in Mexican notes secured by U.S. government bonds. The bank has a 45% reserve against the remaining C$349 million of Mexican debt and expects to swap that for other Mexican notes supported by U.S. Treasury zero-coupon bonds.

Mr. Bowder said the bank's experience with LDC debt has been "painful" and this latest move represents the final phase of a program begun seven years ago to reduce its exposure through provisioning, debt sales and debt swaps. He said the bank will no longer participate in LDC sovereign lending, but will support trade financing and other transactions that meet the bank's standards.

The carnage among takeover stocks Friday doesn't mean the end of mega-mergers but simply marks the start of a less ambitious game, Wall Street's big-time deal makers say.

Suitors from now on are more likely to be expansion-minded companies, rather than raiders or debt-happy financiers. And they will be launching lower-priced and perhaps fewer deals, now that it's tougher to finance them.

This is an ominous sign for a stock market that lately has been fueled by takeover speculation and bidding wars for companies that put themselves up for sale. Whenever the 1980s merger boom seems to be stalling, shock waves ripple through the stock market.

"The market is overvalued, not cheap," says Alan Gaines of the New York money-management firm Gaines Berland. He recently began increasing his cash position to 45% of his portfolio. "I look at where deals can get done," he says, "and they're not getting done" at current prices.

Lenders are growing increasingly nervous about debt-financed takeovers, investment bankers say. "You had a week of a deteriorating junk-bond market that ran smack into the news on Friday about what appeared to be happening to the bank debt market," says Steven Rattner, a partner and merger specialist with Lazard Freres & Co.

Trading dried up Friday in the market for high-yield junk bonds, often used to finance takeovers. It was the latest in a series of setbacks for the junk bond market, where prices began weakening last month after Campeau hit a cash crunch.

And banks appear to be taking an increasingly skeptical view of requests for high-risk takeover loans. The group trying to buy UAL announced Friday that it couldn't arrange the $7.2 billion in bank loans it needs to buy the parent of United Airlines for $300 a share.

Takeover-stock traders today will be scrambling to learn of any UAL developments, and other takeover stocks are likely to trade in sympathy. Investment bankers representing the buy-out group and UAL's board spent a frantic weekend trying to hammer out new terms that would be more acceptable to the banks.

After UAL, the stock viewed as most vulnerable is American Airlines' parent AMR, the target of a $120-a-share takeover proposal from New York real estate developer Donald Trump. Trading in AMR shares was suspended shortly after 3 p.m. EDT Friday and didn't resume. Before the halt, AMR last traded at 98 5/8. Late Friday night, the London office of Jefferies & Co., a Los Angeles securities firm, traded AMR shares at prices as low as 80. Similarly, Delta Air Lines and USAir Group dropped 10.1% and 8.5%, respectively, on Friday and could weaken further.

Over the weeked, however, two developments in other deals indicated that commerical banks and Wall Street firms still are willing to commit billions of dollars to finance takeover bids launched by major companies.

Vitro S.A., a major Mexican glass maker, said yesterday that it agreed to buy Anchor Glass Container in a tender offer for $21.25 a share, sweetened from the original $20-a-share offer Vitro launched two months ago. On Friday, Anchor shares fell 1 1/4 to close at 18 1/2.

For the broader market, the greatest significance of the Vitro-Anchor deal may be that it was put together late Friday night -- after the market rout -- and involves a $155 million temporary "bridge" loan from Donaldson, Lufkin & Jenrette Securities and a $139 million loan from Security Pacific National Bank.

Moreover, to complete the entire Anchor Glass purchase and refinance existing debt, Donaldson said it is "highly confident" that it will be able to sell $400 million of junk bonds for Vitro, despite the current disarray in the junk bond market. Donaldson's statement isn't merely an idle boast, because those bonds will have to be sold before Donaldson's bridge loan can be paid back. Security Pacific, meanwhile, said it expects to arrange $430 million in bank loans for Vitro.

In another takeover battle, a spokesman for McCaw Cellular Communications said yesterday that McCaw has been advised by three commercial banks that they remain "highly confident" they can arrange $4.5 billion of bank loans for McCaw's tender offer for about 45% of LIN Broadcasting, "notwithstanding recent events."

McCaw is offering $125 a share for 22 million LIN shares, thereby challenging LIN's proposal to spin off its television properties, pay shareholders a $20-a-share special dividend and combine its cellular-telephone operations with BellSouth's cellular business.

On Friday, LIN shares were among the few takeover issues that didn't fall much, dropping 5 1/2, or 4.9%, to close at 107 1/2. Traders and investment bankers said LIN shares weren't hurt much because BellSouth is viewed as a well-financed corporate buyer unlikely to be affected by skittishness among bankers or bond buyers.

Investment bankers interviewed over the weekend see a silver lining for the merger business in the stock-market drop. Potential bidders for companies "were saying that things were beginning to look expensive," says Mr. Rattner of Lazard.

"Nothing makes things look cheaper than a 200-point drop in the Dow," Mr. Rattner says. "Just as there are people waiting to become bargain hunters in the stock market, there are people waiting to become bargain hunters in the deal market."

Investment bankers expect most of those bargain hunters to be well-heeled corporations.

"In the past, corporate buyers were often discouraged from making bids because of competition from LBO firms, which were often prepared to outbid" the corporations, says J. Tomilson Hill, head of mergers and acquisitions at Shearson Lehman Hutton. Now, "corporate buyers should be willing to re-enter the acquisition market because the competition from junkbond-financed buyers has been reduced."

Many takeover stocks plunged Friday, as speculators retained their confidence in corporate buyers but fled from the socalled whisper stocks, the targets of rumored deals.

Columbia Pictures Entertainment, which has agreed to a friendly $27-a-share bid from Sony of Japan, fell only 1/8 to close at 26 5/8.

But several stocks long rumored to be ripe for a takeover or restructuring fell 10% or more. They include USX, down 11.7%; Upjohn, down 11.1%; Campbell Soup, down 11%; Paramount Communications, off 10.3%; Woolworth, down 10.2%; Delta Air Lines, down 10.1%, and MCA, down 9.7%.

The market -- and investment bankers -- are even less sanguine about companies that have had at least one bid, merger agreement or restructuring plan fall through already. Given the weakness in both the junk bond market and the stock market, traders fear that these transactions may be revised yet again.

Examples include Kollmorgen, whose agreement to be acquired for $25 a share by Vernitron collapsed last month. Kollmorgen shares fell nearly 20% on Friday to close at 12 7/8.

Ramada, which first delayed and then shelved a $400 million junk bond sale that was designed to help finance a restructuring, fell 15.6% to close at 9 1/2. Ramada has said it hopes to propose a new restructuring plan but hasn't indicated when it will do so.

Shares of American Medical International, which agreed last week to accept a lower price from a buy-out group that includes First Boston Corp. and the Pritzker family of Chicago, fell 15.8% on Friday to close at 20. The buy-out group is offering $26.50 a share for 63 million American Medical shares, down from its offer in July of $28 a share for 68.8 million shares.

But investment bankers say the market may have oversold some takeover-related stocks. Hilton Hotels, for example, was among the worst-hit issues, falling 20.2% to close at 85, down 21 1/2 on Friday.

Hilton currently is soliciting bids for a sale of part or all of its hotel and casino businesses. People familiar with Hilton said over the weekend that the depth of the sell-off in Hilton shares was unwarranted because none of the likely buyers would be dependent on junk-bond financing. However, they conceded that some potential bidders would rely on bank loans and would be hurt if the troubles of the UAL buy-out group signified a general unwillingness among banks to provide credit for debt-financed takeovers.

Hilton officials said they weren't worried about the drop in the company's stock. William Lebo, Hilton's general counsel, said plans to consider a sale of the company or some of its assets are "on track" for what has been described previously as "a slow and deliberate process."

"I can't believe that any potential buyer for Hilton would be affected by one day's trading," Mr. Lebo said.

But the stock market as a whole, bolstered as it is by takeover speculation, remains vulnerable to any further pullback by takeover financiers, both in the junkbond market and among commercial banks. For debt-ridden suitors, "the takeover game has been over for some time," says New York money manager Neil Weisman of Chilmark Capital, who has been keeping 85% of his portfolio in cash. "The market is just waking up to that point."

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Pauline Yoshihashi in Los Angeles contributed to this column. @ --- @ Deal-Stock Hit List @ FRIDAY $ % @ -CLOSE FALL FALL @ Deals That Fell Through @Kollmorgen 12 7/8 3 1/8 19.5 @Ramada 9 1/2 1 3/4 15.6 @Avon Products 28 1/2 4 1/4 13.0 @MGM/UA 18 3/4 1 5/8 8.0 @ Deals Not Completed @Hilton 85 21 1/2 20.2 @UAL Corp.* 279 3/4 3 1/4 1.1 @AMI 20 3 3/4 15.8 @Harcourt Brace 7 1/8 1 12.3 @B.A.T Industries 11 1/2 1 3/8 10.7 @Holiday Corp. 71 1/2 7 3/4 9.8 @TW Services 32 1/2 3 8.5 @Time Warner 131 1/2 11 1/2 7.9 @Warner Comm. 61 1/2 5 1/8 7.7 @ Targets @AMR Corp.* 98 5/8 5 1/8 4.9 @Georgia Gulf 47 1/2 5 1/4 10.0 @Arms. World Ind. 41 1/4 3 3/4 8.3 @ Rumored Deals @USX 33 4 3/8 11.7 @Upjohn 36 4 1/2 11.1 @Campbell Soup 43 1/2 5 3/8 11.0 @Paramount Comm. 56 5/8 6 1/2 10.3 @Woolworth 59 1/2 6 3/4 10.2 @Delta Air Lines 69 1/4 7 3/4 10.1 @MCA 62 6 5/8 9.7 @Chevron 59 7/8 6 9.1 @USAir Group 41 1/2 3 7/8 8.5 @Warner Lambert 103 1/4 8 1/2 7.6 @ Held Pretty Steady @LIN Broadcasting 107 1/2 5 1/2 4.9 @Columbia Pict. 26 5/8 1/8 0.5 @ *Trading halted; did not resume.

Of all the one-time expenses incurred by a corporation or professional firm, few are larger or longer term than the purchase of real estate or the signing of a commercial lease.

To take full advantage of the financial opportunities in this commitment, however, the corporation or professional firm must do more than negotiate the best purchase price or lease terms. It must also evaluate the real-estate market in the chosen location from a new perspective. Specifically, it must understand how real-estate markets overreact to shifts in regional economies and then take advantage of these opportunities.

When a regional economy catches cold, the local real-estate market gets pneumonia. In other words, real-estate market indicators, such as building permits and leasing activity, plummet much further than a local economy in recession. This was seen in the late 1960s in Los Angeles and the mid-1970s in New York. But the reverse is also true: When a region's economy rebounds from a slowdown, these real-estate indicators will rebound far faster than the improving economy.

Why do local real-estate markets overreact to regional economic cycles? Because real-estate purchases and leases are such major long-term commitments that most companies and individuals make these decisions only when confident of future economic stability and growth.

Metropolitan Detroit was written off economically during the early 1980s, as the domestic auto industry suffered a serious sales depression and adjustment. Area employment dropped by 13% from its 1979 peak and retail sales were down 14%. However, the real-estate market was hurt even more. For example, residential building permits in the trough year of 1982 were off 76% from the 1979 peak level.

Once metropolitan Detroit's economy rallied in the mid-1980s, real estate rebounded. Building permits, for example, soared a staggering 400% between 1982 and the peak year of 1986.

Where, savvy corporations and professional firms are now asking, are today's opportunities?

Look no further than metropolitan Houston and Denver, two of the most depressed, overbuilt and potentially undervalued real-estate markets in the nation. Of course, some observers have touted Houston and Denver for the past five years as a counter-cyclical play. But now appears to be the time to act.

Metropolitan Houston's economy did drop and then flatten in the years after its 1982 peak. In the mid-1980s, employment was down as much as 5% from the 1982 peak and retail sales were off 13%.

The real-estate market suffered even more severe setbacks. Office construction dropped 97%. The vacancy rate soared more than 20% in nearly every product category, and more than 30% of office space was vacant. To some observers, the empty office buildings of Houston's "see-through skyline" were indicative of a very troubled economy.

As usual, the real-estate market had overreacted. Actually, the region's economy retained a firm foundation. Metropolitan Houston's population has held steady over the past six years. And personal income, after slumping in the mid-1980s, has returned to its 1982 level in real dollar terms.

Today, metropolitan Houston's real-estate market is poised for a significant turnaround. More than 42,000 jobs were added in metro Houston last year, primarily in biotechnology, petrochemical processing, and the computer industry. This growth puts Houston in the top five metro areas in the nation last year. And forecasts project a 2.5% to 3% growth rate in jobs over the next few years -- nearly twice the national average.

Denver is another metropolitan area where the commercial real-estate market has overreacted to the region's economic trends, although Denver has not experienced as severe an economic downturn as Houston. By some measures, metropolitan Denver's economy has actually improved in the past four years. Its population has continued to increase since 1983, the peak year of the economic cycle. Employment is now 4% higher than in 1983. Buying income in real dollars actually increased 15% between 1983 and 1987 (the most recent year available).

The rates of increase, however, are less than the rapid growth of the boom years, and this has resulted in a loss of confidence in the economy. In a self-fulfilling prophecy, therefore, the region's real-estate market all but collapsed in recent years. Housing building permits are down more than 75% from their 1983 peaks.

Although no one can predict when metropolitan Denver's real-estate market will rebound, major public works projects costing several billion dollars are under way or planned -- such as a new convention center, a major beltway encircling the metropolitan area, and a new regional airport. When Denver's regional economy begins to grow faster -- such a recovery could occur as early as next year -- business and consumer confidence will return, and the resulting explosion of real-estate activity will dwarf the general economic rebound.

What real-estate strategy should one follow in a metropolitan area whose economic health is not as easy to determine as Houston's or Denver's? Generally, overcapacity in commercial real estate is dropping from its mid-1980s peak, even in such economically healthy metropolitan areas as Washington, New York and Los Angeles. Vacancy rates in the 15% to 19% range today may easily rise to the low to mid-20% range in a couple of years. Under these conditions, even a flattening out of economic growth -- "catching cold" -- in the healthy metropolitan areas will create significant opportunities for corporations and professional service firms looking for bargains as the realestate industry catches pneumonia.

Those looking for real-estate bargains in distressed metropolitan areas should lock in leases or buy now; those looking in healthy metropolitan areas should take a short-term (three-year) lease and wait for the bargains ahead.

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Mr. Leinberger is managing partner of a real-estate advisory firm based in Beverly Hills, Calif.

Kysor Industrial Corp. said it expects its third-quarter net earnings to be between two cents and four cents a share, compared with 61 cents a share a year ago. Analysts had been projecting that the company's earnings would be between 25 cents and 30 cents a share. The year-earlier third-quarter earnings amounted to $4.1 million.

The company said a drop in activity in the powerboat industry reduced sales volume at its two marine-related operations. Also, the company said its commercial products operation failed to meet forecasts.

Kysor, a maker of heavy-duty truck and commercial refrigeration equipment, said it expects its fourth-quarter earnings to be more closely in line with usual levels, which are between 30 cents and 50 cents a share.

Common Cause asked both the Senate Ethics Committee and the Justice Department to investigate $1 million in political gifts by Arizona businessman Charles Keating to five U.S. senators who interceded with thrift-industry regulators for him.

Mr. Keating is currently the subject of a $1.1 billion federal anti-racketeering lawsuit accusing him of bleeding off assets of a California thrift he controlled, Lincoln Savings & Loan Association, and driving it into insolvency.

Fred Wertheimer -- president of Common Cause, the self-styled citizens lobby -- said Mr. Keating already has conceded attempting to buy influence with the lawmakers -- Democratic Sens. Dennis DeConcini of Arizona, Alan Cranston of California, John Glenn of Ohio and Donald Riegle of Michigan; and GOP Sen. John McCain of Arizona.

Mr. Wertheimer based this on a statement by Mr. Keating that was quoted in a Wall Street Journal story in April: "One question . . . had to do with whether my financial support in any way influenced several political figures to take up my cause. I want to say in the most forceful way I can: I certainly hope so."

In a highly unusual meeting in Sen. DeConcini's office in April 1987, the five senators asked federal regulators to ease up on Lincoln. According to notes taken by one of the participants at the meeting, the regulators said Lincoln was gambling dangerously with depositors' federally insured money and was "a ticking time bomb." Mr. Keating had complained that the regulators were being too zealous.

The notes show that Sen. DeConcini called the Federal Home Loan Bank Board's regulations "grossly unfair," and that Sen. Glenn insisted that Mr. Keating's thrift was "viable and profitable."

For the next two years, the Bank Board, which at the time was the agency responsible for regulating thrifts, failed to act -- even after federal auditors warned in May 1987 that Mr. Keating had caused Lincoln to become insolvent. Lincoln's parent company, American Continental Corp., entered bankruptcy-law proceedings this April 13, and regulators seized the thrift the next day. The newly formed Resolution Trust Corp., successor to the Bank Board, filed suit against Mr. Keating and several others on Sept. 15.

Mr. Keating has filed his own suit, alleging that his property was taken illegally.

The cost to taxpayers of Lincoln's collapse has been estimated at as much as $2.5 billion.

Details of the affair have become public gradually over the past two years, mostly as a result of reporting by several newspapers. In the midst of his 1988 re-election campaign, Sen. Riegle, chairman of the Senate Banking Committee, returned $76,000 in contributions after a Detroit newspaper said that Mr. Keating had gathered the money for him about two weeks before the meeting with regulators.

Sen. DeConcini, after months of fending off intense press criticism, returned $48,000 only last month, shortly after the government formally accused Mr. Keating of defrauding Lincoln.

In addition, Sen. McCain last week disclosed that he belatedly had paid $13,433 to American Continental as reimbursement for trips he and his family took aboard the corporate jet to Mr. Keating's vacation home at Cat Cay, the Bahamas, from 1984 through 1986. Sen. McCain said he had meant to pay for the trips at the time but that the matter "fell between the cracks."

Mr. Keating, his family members and associates also donated $112,000 to Sen. McCain's congressional campaigns over the years, according to press accounts. But Sen. McCain says Mr. Keating broke off their friendship abruptly in 1987, because the senator refused to press the thrift executive's case as vigorously as Mr. Keating wanted. "He became very angry at that, left my office and told a number of people that I was a wimp," Sen. McCain recalls.

In July, California newspapers disclosed that Mr. Keating gave $850,000 in corporate funds to three tax-exempt voter registration organizations in 1987 and 1988 at the behest of Sen. Cranston, who conceded that soliciting the money was "a pretty stupid thing to do politically." In addition, Sen. Cranston received $47,000 in campaign donations through Mr. Keating, and the California Democratic party received $85,000 in corporate donations for a 1986 get-out-the-vote drive that benefited the senator's re-election campaign that year.

Also in July, Ohio newspapers disclosed $200,000 in corporate donations by Mr. Keating to the National Council on Public Policy, a political committee controlled by Sen. Glenn. That was in addition to $34,000 in direct campaign donations arranged by Mr. Keating to the Ohio senator.

Mr. Wertheimer said the Senate Ethics Committee should hire a special outside counsel to conduct an investigation, as was done in the case of former House Speaker James Wright. Wilson Abney, staff director of the ethics panel, wouldn't comment.

Sen. Riegle said he would cooperate with any inquiry, but that his conduct had been "entirely proper." Sen. McCain said he had been "deeply concerned" at the time of the meeting that it might seem to be improper, but decided it was "entirely appropriate" for him to seek fair treatment for a constituent.

Sen. Glenn said he had already made a complete disclosure of his role in the affair and "I am completely satisfied to let this matter rest in the hands of the Senate Ethics Committee." Sen. DeConcini said, "When all is said and done, I expect to be fully exonerated."

Sen. Cranston, who had already volunteered his help to the Federal Bureau of Investigation in any investigation of Mr. Keating, portrayed his role in 1987 as prodding regulators to act. "Why didn't the Bank Board act sooner?" he said. "That is what Common Cause should ask be investigated."

Trinity Industries Inc. said it reached a preliminary agreement to manufacture 1,000 coal rail cars for Norfolk Southern Corp. Trinity estimated the value of the pact at more than $40 million.

Trinity said it plans to begin delivery of the rail cars in the first quarter of 1990. It said the 1,000 rail cars are in addition to the 1,450 coal rail cars presently being produced for Norfolk Southern, a Norfolk, Va.-based railroad concern.

When China opened its doors to foreign investors in 1979, toy makers from Hong Kong were among the first to march in.

Today, with about 75% of the companies' products being made in China, the chairman of the Hong Kong Toys Council, Dennis Ting, has suggested a new sourcing label: "Made in China by Hong Kong Companies."

The toy makers were pushed across the border by rising labor and land costs in the British colony. But in the wake of the shootings in Beijing on June 4, the Hong Kong toy industry is worrying about its strong dependence on China. Although the manufacturers stress that production hasn't been affected by China's political turmoil, they are looking for additional sites. The toy makers, and their foreign buyers, cite uncertainty about China's economic and political policies.

"Nobody wants to have all his eggs in one basket," says David Yeh, chairman and chief executive officer of International Matchbox Group Ltd.

Indeed, Matchbox and other leading Hong Kong toy makers were setting up factories in Southeast Asia, especially in Thailand, long before the massacre. Their steps were partly prompted by concern over a deterioration of business conditions in southern China.

By diversifying supply sources, the toy makers don't intend to withdraw from China, manufacturers and foreign buyers say. It wouldn't be easy to duplicate quickly the manufacturing capacity built up in southern China during the past decade. A supply of cheap labor and the access to Hong Kong's port, airport, banks and support industries, such as printing companies, have made China's Guangdong province a premier manufacturing site.

"South China is the most competitive source of toys in the world," says Henry Hu, executive director of Wah Shing Toys Consolidated Ltd.

Hong Kong trade figures illustrate the toy makers' reliance on factories across the border. In 1988, exports of domestically produced toys and games fell 19% from 1987, to HK$10.05 billion (US$1.29 billion). But re-exports, mainly from China, jumped 75%, to HK$15.92 billion. In 1989's first seven months, domestic exports fell 29%, to HK$3.87 billion, while re-exports rose 56%, to HK$11.28 billion.

Manufacturers say there is no immediate substitute for southern China, where an estimated 120,000 people are employed by the toy industry. "For the next few years, like it or not, China is going to be the main supplier," says Edmund Young, vice president of Perfecta Enterprises Ltd., one of the first big Hong Kong toy makers to move across the border.

In the meantime, as manufacturers and buyers seek new sites, they are focusing mainly on Southeast Asia. Several big companies have established manufacturing joint ventures in Thailand, including Matchbox, Wah Shing and Kader Industrial Co., the toy manufacturer headed by Mr. Ting. Malaysia, the Philippines and Indonesia also are being studied.

With the European Community set to remove its internal trade barriers in 1992, several Hong Kong companies are beginning to consider Spain, Portugal and Greece as possible manufacturing sites.

Worries about China came just as Hong Kong's toy industry was recovering from a 1987 sales slump and bankruptcy filings by two major U.S. companies, Worlds of Wonder Inc. and Coleco Industries Inc. Hong Kong manufacturers say large debt writeoffs and other financial problems resulting from the 1987 difficulties chastened the local industry, causing it to tighten credit policies and financial management. The industry regards last year and this year as a period of recovery that will lead to improved results. Still, they long for a "mega-hit" toy to excite retail sales in the U.S., Hong Kong's biggest market for toys and games.

The closest thing the colony's companies have to a U.S. mega-hit this year is the Teenage Mutant Ninja Turtles series of action figures manufactured by Playmates Holdings Ltd. Introduced in mid-1988, the 15-centimeter-tall plastic turtles are based on an American comic book and television series.

Paul Kwan, managing director of Playmates, says 10 million Ninja Turtles have been sold, placing the reptilian warriors among the 10 biggest-selling toys in the U.S. Should sales continue to be strong through the Christmas season, which accounts for about 60% of U.S. retail toy sales, Mr. Kwan said the Ninja Turtles could make 1989 a record sales year for Playmates.

Other Hong Kong manufacturers expect their results to improve only slightly this year from 1988. Besides the lack of a fast-selling product, they cite the continued dominance of the U.S. market by Nintendo Entertainment System, an expensive video game made by Nintendo Co. of Japan. Nintendo buyers have little money left to spend on other products.

Many of the toy makers' problems started well before June 4 as a result of overstrained infrastructure and Beijing's austerity programs launched late last year. Toy makers complain that electricity in Guangdong has been provided only three days a week in recent months, down from five days a week, as the province's rapid industrialization has outstripped its generating capacity. Manufacturers are upgrading standby power plants.

Bank credit for China investments all but dried up following June 4. Also, concern exists that the harder-line Beijing leadership will tighten its control of Guangdong, which has been the main laboratory for the open-door policy and economic reforms.

But, toy manufacturers and other industrialists say Beijing will be restrained from tightening controls on export-oriented southern China. They say China's trade deficit is widening and the country is too short of foreign exchange for it to hamper production in Guangdong. "The Chinese leaders have to decide whether they want control or whether the want exports," says Mr. Kwan of Playmates.

The Bush administration, urging the Supreme Court to give states more leeway to restrict abortions, said minors haven't any right to abortion without the consent of their parents.

Solicitor General Kenneth Starr argued that the 1973 Supreme Court decision, Roe vs. Wade, recognizing a constitutional right to abortion, was incorrect. He also argued that the high court was wrong in 1976 to rule that minors have a right to abortion that can't be absolutely vetoed by their parents.

The administration's position was outlined in a friend-of-the-court brief filed in one of three abortion cases the Supreme Court will hear argued and will decide this term. The administration filed the brief in an appeal involving a Minnesota law that requires that both parents of a minor be notified before she may have an abortion.

The administration urged the justices to adopt a legal standard suggested by Chief Justice William Rehnquist last July when the high court upheld Missouri's abortion restrictions. Under that standard, which garnered the votes of only three of the nine justices, a state restriction of abortion is constitutional if the state has a "reasonable" justification for adopting it. That is a much easier standard for a state to satisfy than the Supreme Court's test since 1973, which requires a state to have a "compelling" reason for restricting abortion.

On the provisions of the Minnesota law, the Bush administration said that requiring that both parents be notified is a reasonable regulation, and that there is no need to have an alternative that allows minors to go to court for a judge's permission instead.

The case, Hodgson vs. Minnesota, will be argued Nov. 29.

Aluminum Co. of America, hit hard by the strength of the dollar overseas, said net income for the third quarter dropped 3.2% to $219 million, or $2.46 a share.

The nation's No. 1 aluminum maker earned $226.3 million, or $2.56 a share, a year earlier.

Revenue rose 11% to $2.83 billion from $2.56 billion.

Analysts, who were expecting Alcoa to post around $2.70 to $3 a share, were surprised at the lackluster third-quarter results. "It's disappointing," said William Siedenburg, an analyst with Smith Barney, Harris Upham & Co.

Much of the earnings decline was led by currency-exchange rate adjustments, which affected the bottom line by $15.3 million, or 17 cents a share, compared with $3.6 million, or four cents a share, the previous year.

Lower prices for aluminum ingots and certain alloy products and a shift in the product mix also contributed to lower earnings, the company said. "In addition, costs were higher partly due to scheduled plant outages for modernization work," the company said.

Excluding the higher tax rate, which rose two percentage points to 38%, and the negative exchange rate adjustment, the company would have met analysts' expectations, said R. Wayne Atwell, an analyst with Goldman, Sachs & Co.

Noting that the third quarter is usually the aluminum industry's slowest, Mr. Atwell added, "the third quarter is never a bang up period for them anyway."

Nevertheless, the company said shipments were up slightly to 679,000 metric tons from 671,000, buffing the impact of the unexpected earning decline.

The results were announced after the stock market closed. In New York Stock Exchange composite trading Friday, Alcoa closed at $72 a share, down $4.75, in a sharply lower market.

For 20 years, federal rules have barred the three major television networks from sharing in one of the most lucrative and fastest-growing parts of the television business. And for six years, NBC, ABC and CBS have negotiated with Hollywood studios in a futile attempt to change that.

But with foreign companies snapping up U.S. movie studios, the networks are pressing their fight harder than ever. They hope the foreign deals will divide the Hollywood opposition and prod Congress to push for ending federal rules that prohibit the networks from grabbing a piece of rerun sales and owning part of the shows they put on the air.

Even network executives, however, admit privately that victory -- either in Congress or in talks with the studios -- is highly doubtful any time soon. And so the networks also are pushing for new ways to sidestep the "fin-syn" provisions, known formally as the Financial Interest and Syndication Rules.

That became clear last week with the disclosure that National Broadcasting Co., backed by the deep pockets of parent General Electric Co., had tried to help fund Qintex Australia Ltd.'s now-scuttled $1.5 billion bid for MGM/UA Communications Co. NBC's interest may revive the deal, which MGM/UA killed last week when the Australian concern had trouble raising cash.

Even if that deal isn't revived, NBC hopes to find another. "Our doors are open," an NBC spokesman says. NBC may yet find a way to take a passive, minority interest in a program-maker without violating the rules. And any NBC effort could prompt CBS Inc. and ABC's parent, Capital Cities/ABC Inc., to look for ways of skirting the fin-syn regulations.

But the networks' push may only aggravate an increasingly bitter rift between them and Hollywood studios. Both sides are to sit down next month for yet another meeting on how they might agree on reducing fin-syn restraints. Few people privy to the talks expect the studios to budge.

The networks still are "uninhibited in their authority" over what shows get on the air, charges Motion Picture Association President Jack Valenti, the most vociferous opponent of rescinding the rules. Studios are "powerless" to get shows in prime-time lineups and keep them there long enough to go into lucrative rerun sales, he contends. And that's why the rules, for the most part, must stay in place, he says.

Studio executives in on the talks-including officials at Paramount Communications Inc., Fries Entertainment Inc., Warner Communications Inc. and MCA Inc. -- declined to be interviewed. But Mr. Valenti, who represents the studios, asserts: "The whole production industry, to a man, is on the side of preserving" the rules.

Such proclamations leave network officials all the more doubtful that the studios will bend. "They don't seem to have an incentive to negotiate," says one network executive. "And there's no indication that Washington is prepared to address the rules. That's the problem, isn't it?"

Indeed it is. Congress has said repeatedly it wants no part of the mess, urging the studios and the networks, which license rights to air shows made by the studios, to work out their own compromise.

But recent developments have made the networks -- and NBC President Robert Wright, in particular -- ever more adamant that the networks must be unshackled to survive. The latest provocation: Sony Corp.'s plan to acquire Columbia Pictures Entertainment Inc. for $3.4 billion, and to buy independent producer Guber Peters Entertainment Co. for $200 million.

"I wonder what Walter Cronkite will think of the Sony/Columbia Broadcast System Trinitron Evening News with Dan Rather broadcast exclusively from Tokyo," wrote J.B. Holston, an NBC vice president, in a commentary in last week's issue of Broadcasting magazine. In his article, Mr. Holston, who was in Europe last week and unavailable, complained that the "archaic restraints" in fin-syn rules have "contributed directly to the acquisition of the studios by non-U.S. enterprises." (He didn't mention that NBC, in the meantime, was hoping to assist Australia's Qintex in buying MGM/UA.)

An NBC spokesman counters that Mr. Holston's lament was "entirely consistent" with NBC plans because the U.S. rules would limit NBC's involvement in the Qintex deal so severely as to be "light years away from the type of unrestrained deals available to Sony -- and everyone else except the three networks."

The Big Three's drumbeat for deregulation began intensifying in the summer when the former Time Inc. went ahead with plans to acquire Warner. Although Time already had a long-term contract to buy movies from Warner, the merger will let Time's largely unregulated pay-cable channel, Home Box Office, own the Warner movies aired on HBO -- a vertical integration that is effectively blocked by fin-syn regulations.

NBC's Mr. Wright led the way in decrying the networks' inability to match a Time-Warner combination. He spoke up again when the Sony bid for Columbia was announced. Since NBC's interest in the Qintex bid for MGM/UA was disclosed, Mr. Wright hasn't been available for comment. With a Qintex deal, NBC would move into uncharted territory -- possibly raising hackles at the studios and in Washington.

"It's never really been tested," says William Lilley III, who as a top CBS executive spent years lobbying to have the rules lifted. He now runs Policy Communications in Washington, consulting to media companies. Fin-syn rules don't explicitly block a network from buying a passive, small stake in a company that profits from the rerun syndication networks can't enjoy.

Hence, NBC might be able to take, say, a 5% stake in a company such as MGM/UA. If the transaction raised objections, the studio's syndication operations could be spun off into a separate firm in which the network doesn't have a direct stake.

But such convolutions would still block the networks from grabbing a big chunk of the riches of syndication. Under current rules, even when a network fares well with a 100%-owned series -- ABC, for example, made a killing in broadcasting its popular crime/comedy "Moonlighting" -- it isn't allowed to share in the continuing proceeds when the reruns are sold to local stations. Instead, ABC will have to sell off the rights for a one-time fee.

The networks admit that the chances of getting the relief they want are slim -- for several years at the least.

Six years ago they were tantalizingly close. The Reagan-era Federal Communications Commission had ruled in favor of killing most of the rules. Various evidence, including a Brookings Institution study of some 800 series that the networks had aired and had partly owned in the 1960s, showed the networks didn't wield undue control over the studios as had been alleged.

But just eight days before the rules were to die, former President Ronald Reagan, a one-time actor, intervened on behalf of Hollywood. The FCC effort collapsed.

The networks and studios have bickered ever since. Network officials involved in the studio talks may hope the foreign influx builds more support in Washington, but that seems unlikely. In Congress, the issue falters: It's about money, not program quality, and Hollywood has lots of clout given its fund raising for senators and representatives overseeing the issue.

A spokesman for Rep. Edward J. Markey (D-Mass.), who heads a subcommittee that oversees the FCC, says Mr. Markey feels "the world has been forever changed by the Sony-Columbia deal." But he said Mr. Markey hopes this pushes the networks and studios to work it out on their own. And at the FCC, meanwhile, new Chairman Alfred C. Sikes has said he wants the two sides to hammer out their own plan.

--- @ A Tangled Web of Regulation @ 1959: Federal Communications Commission begins inquiry into whether networks wield monopoly power over program production and distribution. @ 1970: FCC passes Financial Interest and Syndication Rules, Forces networks out of the syndication business, bars them from sharing in rerun sales and prohibits them from owning less than 100% of a TV series. @ 1972: Nixon Administration's Justice Department files antitrust suit against CBS, NBC and ABC alleging anti-competitive behavior. @ 1977: FCC begins new study of whether to toughen "fin-syn" rules. @ 1978: NBC signs consent decree with Justice. Incorporates fin-syn rules and adds new limits on how many 100%-owned shows the networks can put on the air. Limit to expire November 1990. @ 1980: CBS and ABC enter similar consent decrees. @ 1982: FCC staff, in study begun in 1977, finds networks haven't been anti-competitive, rules haven't served their purpose. FCC starts new study of staff findings. @ 1983: FCC prepares to repeal fin-syn rules. Eight days before repeal, Reagan White House intervenes at studios' request. FCC delays action. Congress asks Hollywood and networks to privately work out a comprise. @ 1985: Studios and CBS reach possible settlement; it collapses when ABC and NBC won't agree. @ 1986: Another proposed settlement is reached. But three networks' new owners balk. @ 1987-Present: Studios and networks begin new talks. Little progress is made.

Recognition Equipment Inc. said it settled a civil action filed against it by the federal government on behalf of the U.S. Postal Service.

The government sued the company in April, seeking $23,000 and other unspecified damages related to an alleged contract-steering scheme. The suit named the company, former chief executive officer William G. Moore Jr., former vice president Robert W. Reedy and five defendants who weren't part of the company. The suit charged the defendants with causing Peter E. Voss, an ex-member of the Postal Service board of governors, to accept $23,000 in bribes, kickbacks and gratuities. Mr. Voss was previously sentenced to four years in prison and fined $11,000 for his role in the scheme.

In the agreement, Recognition agreed to pay the government $20,000 in return for the release of all claims against the company, Mr. Moore and Mr. Reedy. The five additional defendants weren't parties to the settlement.

A trial on criminal allegations against the company and the same two former executives began Sept. 27 in federal court for the District of Columbia. They were indicted last October on charges of fraud, theft and conspiracy related to an effort to win $400 million in Postal Service equipment contracts by the maker of data management equipment. The company and its executives deny the charges.

In a related development, Recognition Equipment said the Postal Service has barred the company from bidding on postal contracts for an additional 120 days. The Postal Service originally suspended the company Oct. 7, 1988, and has been renewing the ban ever since. The company said it will continue to pursue a lifting of the suspension.

Intel Corp. reported a 50% drop in third-quarter net income, partly because of a one-time charge for discontinued operations.

The big semiconductor and computer maker, said it had net of $72 million, or 38 cents, down 50% from $142.7 million, or 78 cents a share. The lower net included a charge of $35 million, equal to 12 cents a share on an after-tax basis, for the cost of abandoning a computer-systems joint venture with Siemens AG of West Germany. Earning also fell from the year-ago period because of slowing microchip demand. Sales amounted to $771.4 million, down 1.7% from $784.9 million.

Intel's stock rose in early over-the-counter trading Friday, as investors appeared relieved that the company's income from continuing operations was only slightly below the second quarter's earnings of $99.3 million, or 53 cents a share, and that sales actually exceeded the $747.3 million for the second period. But Intel later succumbed to the stock market's plunge, closing at $31.75, down $2.125.

In August, Intel warned that third-quarter earnings might be "flat to down" from the previous period's because of slowing sales growth of its 80386 microprocessor, start-up costs associated with a line of computers and costs of preparing for mass shipments of the company's new 80486 chip in the current quarter.

On Friday, Andrew S.Grove, Intel president and chief executive officer, said "Intel's business is strong. Our bookings improved as the quarter progressed and September was especially good. For the full quarter, our bookings were higher than the previous quarter, and our book-to-bill ratio exceeded 1.0."

For the nine-month period, Intel reported net of $268.3 million, or $1.43 a share, down 27% from $367.1 million, or $2.05 a share. Revenue amounted to $2.23 billion, up slightly from $2.15 billion.

Walter Sisulu and the African National Congress came home yesterday.

After 26 years in prison, Mr. Sisulu, the 77-year-old former secretary-general of the liberation movement, was dropped off at his house by a prison services' van just as the sun was coming up. At the same time, six ANC colleagues, five of whom were arrested with him in 1963 and sentenced to life imprisonment, were reunited with their families at various places around the country.

And as the graying men returned to their homes, the ANC, outlawed in South Africa since 1960 and still considered to be the chief public enemy by the white government, defiantly returned to the streets of the country's black townships. A huge ANC flag, with black, green and gold stripes, was hoisted over the rickety gate at Mr. Sisulu's modest house, while on the street out front, boys displayed the ANC colors on their shirts, caps and scarves. At the small four-room home of Elias Motsoaledi, a leading ANC unionist and a former commander in the group's armed wing, Umkhonto we Sizwe, well-wishers stuck little ANC flags in their hair and a man tooted on an antelope horn wrapped in ANC ribbons.

"I am happy to see the spirit of the people," said Mr. Sisulu, looking dapper in a new gray suit. As the crowd outside his home shouted "ANC, ANC," the old man shot his fists into the air. "I'm inspired by the mood of the people."

Under the laws of the land, the ANC remains an illegal organization, and its headquarters are still in Lusaka, Zambia. But the unconditional release of the seven leaders, who once formed the intellectual and organizational core of the ANC, is a de facto unbanning of the movement and the rebirth of its internal wing.

"The government can never put the ANC back into the bottle again," said Cassim Saloojee, a veteran anti-apartheid activist on hand to welcome Mr. Sisulu. "Things have gone too far for the government to stop them now. There's no turning back."

There was certainly no stopping the tide of ANC emotion last night, when hundreds of people jammed into the Holy Cross Anglican Church in Soweto for what became the first ANC rally in the country in 30 years. Deafening chants of "ANC" and "Umkhonto we Sizwe" shook the church as the seven aging men vowed that the ANC would continue its fight against the government and the policies of racial segregation on all fronts, including the armed struggle. And they called on the government to release Nelson Mandela, the ANC's leading figure, who was jailed with them and remains in prison. Without him, said Mr. Sisulu, the freeing of the others "is only a half-measure."

President F.W. de Klerk released the ANC men -- along with one of the founding members of the Pan Africanist Congress, a rival liberation group -- as part of his efforts to create a climate of trust and peace in which his government can begin negotiations with black leaders over a new constitution aimed at giving blacks a voice in national government.

But Pretoria may instead be creating a climate for more turmoil and uncertainty in this racially divided country. As other repressive governments, particularly Poland and the Soviet Union, have recently discovered, initial steps to open up society can create a momentum for radical change that becomes difficult, if not impossible, to control.

As the days go by, the South African government will be ever more hard pressed to justify the continued imprisonment of Mr. Mandela as well as the continued banning of the ANC and enforcement of the state of emergency. If it doesn't yield on these matters, and eventually begin talking directly to the ANC, the expectations and promise raised by yesterday's releases will turn to disillusionment and unrest. If it does, the large number of right-wing whites, who oppose any concessions to the black majority, will step up their agitation and threats to take matters into their own hands.

The newly released ANC leaders also will be under enormous pressure. The government is watching closely to see if their presence in the townships leads to increased anti-government protests and violence; if it does, Pretoria will use this as a reason to keep Mr. Mandela behind bars. Pretoria hasn't forgotten why they were all sentenced to life imprisonment in the first place: for sabotage and conspiracy to overthrow the government.

In addition, the government is figuring that the releases could create a split between the internal and external wings of the ANC and between the newly freed leaders and those activists who have emerged as leaders inside the country during their imprisonment. In order to head off any divisions, Mr. Mandela, in a meeting with his colleagues before they were released, instructed them to report to the ANC headquarters in Lusaka as soon as possible.

The men also will be faced with bridging the generation gap between themselves and the country's many militant black youths, the so-called young lions who are anxious to see the old lions in action. Says Peter Mokaba, president of the South African Youth Congress: "We will be expecting them to act like leaders of the ANC."

They never considered themselves to be anything else. At last night's rally, they called on their followers to be firm, yet disciplined, in their opposition to apartheid. "We emphasize discipline because we know that the government is very, very sensitive," said Andrew Mlangeni, another early Umkhonto leader who is now 63. "We want to see Nelson Mandela and all our comrades out of prison, and if we aren't disciplined we may not see them here with us."

There's an intense debate in South Korean President Roh Tae Woo's inner circle over his scheduled speech Wednesday to a joint meeting of Congress: Should he give it in English or Korean?

It would be more effective with the U.S. politicians and public in English, the president's foreign policy advisers argue. But, counter some domestic political aides, it would hurt Mr. Roh at home if he seems to be pandering to the Americans.

U.S. politicians and policy-makers would do well to remember such backhome pressures on the South Korean president as they prepare for an important series of meetings with him this week. For U.S.-South Korean relations, in economic and security terms, are at their most critical stage since the Korean War.

When most Americans think about South Korea, they still conjure up images of the war years, popularized by the TV series M*A*S*H. But South Korea no longer is a backwater, Third World country. With a dynamic, growing economy, it is the U.S.'s seventh-largest trading partner. Moreover, the Korean peninsula remains one of the strategic focal points of East Asia; there are 43,000 U.S. troops stationed there. And the country is at a political crossroads now, as it struggles with its new experiment in democracy.

South Korea is "critically important to us now, both economically and in terms of security," says Sen. Richard Lugar (R., Ind.), the former chairman of the Senate Foreign Relations Committee. "Unfortunately, many Americans don't think much about Korea. But the miracle of their economic growth and the development of democracy -- imperfect though it is -- are very important to the United States." One major topic during Mr. Roh's visit will be human rights. Due process still is denied in South Korea; a few months ago, Kim Dae Jung, the major opposition leader, was detained and interrogated for 20 hours by security thugs. Just as Pope John Paul II did in Seoul last week, President Bush and members of Congress ought to tell Mr. Roh in no uncertain terms that this kind of behavior is unacceptable.

But context is important. South Korea had a free election last year; the liberals lost only because they couldn't unite behind one candidate. Moreover, there is a violent anti-U.S. minority in South Korea -- as demonstrated by the handful of radical students who broke into U.S. Ambassador Donald Gregg's residence in Seoul Friday and vandalized it (the ambassador and his wife were unharmed).

Mr. Roh, a former general and a member of the repressive previous regime, has made impressive strides in supporting democratic values and institutions. It isn't a perfect democracy, but it's a far cry from the authoritarian rule of only a few years ago.

One thing that hasn't changed in South Korea is paranoia about North Korea; several people are being prosecuted for making unapproved visits to the communist north. But a visit to Panmunjom, where the constant tension between the communists and the joint U.S.-South Korean forces is palpable, makes it easier to understand these feelings. Sometimes U.S. politicians forget that North Korea, a country with a population of only 20 million, has an armed force of over one million troops, the sixth largest in the world.

Whatever winds of change are blowing through much of the communist bloc, they haven't reached Pyongyang. As long as it continues to pose a real threat, U.S. critics ought to go slow on demands to reduce troop levels in South Korea.

The major topic when Mr. Roh calls on administration and congressional figures this week will be economics and trade. South Korea hardly is without fault for trade frictions with the U.S.; most experts in the administration think that Commerce Secretary Robert Mosbacher got it exactly wrong a few months ago when he declared that South Korea is more open economically than Japan. On agricultural products in particular -- everything from beef to apples -- the Koreans have succumbed to domestic political pressures for protectionism.

Yet, earlier this year, South Korea promised to make some real concessions on its investment laws and other trade impediments. They enabled the country to avoid being targeted as an unfair trade partner under the tough "Super 301" section of the 1988 U.S. trade act. Separately, as a result of the revaluation of the won and other measures, the almost $10 billion trade surplus the South Koreans enjoyed with the U.S last year will be cut in half this year.

Moreover, just a few days ago, the national assembly, with the governing and opposition parties in an unusual alliance, passed a resolution calling for a gradual opening up of South Korean agricultural markets.

It's appropriate for U.S. officials to keep hammering for more open trade policies, as U.S. Trade Representative Carla Hills did in Seoul last week. But there's also sometimes a tendency in American political circles to pick especially on South Korea, out of frustration over our inability to do much about Japan. That's counterproductive.

Most importantly, it's time for American policy-makers to better appreciate that our economic future rests more with Asia -- Seoul as well as Tokyo -- than anyplace else.

The U.S. always ought to stand up for its interests, but it's essential that U.S. officials have an appreciation of the politics and history of our allies. In the upper echelons of the Roh Tae Woo's government, they're still buzzing about Commerce Secretary Mosbacher's trip to South Korea earlier this year. It seems he learned, for the first time, that South Korea had been occupied for decades by Japan.

Bolstered by a robust long-distance business, the telephone industry is expected to post a healthy profit increase for the third quarter.

Analysts estimate that third-quarter earnings for the industry will increase as much as 19% from the year-earlier period. If so, their cumulative earnings could hit $4.12 billion.

Most of the earnings growth, however, will come from the long-distance sector. American Telephone & Telegraph Co. is expected to post a profit increase of about 18% and MCI Communications Corp.'s earnings are expected to surge 58%.

United Telecommunications Inc. reported last Wednesday that third-quarter net income climbed 75% to $94.6 million, or 90 cents a share, on revenue of $1.93 billion. United Telecom's Sprint unit posted operating profit of $60 million.

Paul Aran, a telecommunications analyst with Bear, Stearns & Co., said the long-distance companies have been buoyed by strong growth in the facsimile and data-service business. He said declining long-distance prices also have helped stimulate usage.

The local telephone companies, however, aren't expected to fare as well. Growth is predicted to be in the 1% to 2% range for most companies, with Southern New England Telephone and GTE Corp. posting profit increases in the neighborhood of 10%.

"The long-distance companies have kept their momentum," says Robert Morris III, a telecommunications analyst with Goldman, Sachs & Co., "while the pace of growth for the local telephone companies is slowing." That's especially true for the regional Bell companies.

He said regulation is primarily responsible for the Bells' dull earnings growth. Most companies have reached their maximum allowed earnings ceilings, which are set by regulators. "This signals the need for regulatory change," Mr. Morris said.

Pacific Telesis Group, which is expected to post earnings of about 75 cents a share, obtained regulatory relief from California regulators last week. Under the plan, the company is allowed to earn more if it can operate more efficiently. In the year-earlier quarter, Pacific Telesis earned $318 million, or 75 cents a share, on revenue of $2.38 billion.

Analysts expect installations of new telephone lines to grow about 3%. However, GTE, BellSouth Corp. and Pacific Telesis, which operate in territories with hearty economies, are expected to report new-telephone-line growth in the range of 4% to 5%. Nynex Corp.'s profits could begin to show signs of weakening from the effects of a nearly three-month strike, while other Bell companies, such as Ameritech and Southwestern Bell Corp., could be hurt in the quarter by one-time charges associated with the settlement of new union contracts.

Mr. Aran, the Bear Stearns analyst, said that generally, after eight weeks, "A strike starts hurting earnings. I'm waiting to see what the impact is on Nynex."

Analysts predict Nynex earnings will be about $1.57 a share, compared with $1.72 a share a year earlier, when the company earned $338.9 million on sales of $3.18 billion.

The independent telephone companies also may post third-quarter results that trail the comparable year-ago period. Rochester Telephone Co., for instance, said it expects third-quarter earnings to be "somewhat lower" than the year-earlier quarter -- even though the company expects to post an extraordinary gain of 50 cents during the period. The company said higher expenses and competitive pressures hampered earnings.

For the 1988 third quarter, Rochester Telephone reported a net income of $12.9 million, or $1.10 a share, on revenue of $120.2 million.

The tug of war between Warner Communications Inc. and Sony Corp. over movie producers Peter Guber and Jon Peters has exploded into a legal battle that could prove an embarrassing setback to Sony's plans to enter the U.S. movie business.

On Friday, after two weeks of fruitless settlement talks, Warner filed suit in Los Angeles Superior Court against Sony and Guber Peters Entertainment Co., charging Sony with inducing the two producers to breach a five-year contract with Warner. The suit seeks $1 billion in damages and an injunction barring Messrs. Guber and Peters from taking the top management posts at Columbia Pictures Entertainment Inc. As previously reported, Sony has agreed to pay $3.4 billion to acquire Columbia and separately has agreed to pay $200 million for Guber Peters Entertainment to obtain the services of its two co-chief executives.

Sony and Guber Peters promptly countersued, charging Warner with attempting to interfere in Sony's acquisition of the two companies and with falsely asserting that the Guber Peters agreement with Warner prevents them from accepting the senior management posts at Columbia.

At issue in the lawsuits is the contract signed last March by Messrs. Guber and Peters that requires the two to make movies exclusively for Warner for the next five years. Sony and Messrs. Guber and Peters maintain that the contract doesn't prohibit taking an executive post at another studio. Moreover, they assert, the producers have an oral agreeement with Warner Bros. studio executives that gives them the right to "terminate the producer relationship in the event they were given and chose to accept the opportunity to become senior executives of a motion picture studio," according to their countersuit.

Warner, for its part, maintains that the written agreement prevents Messrs. Guber and Peters from doing anything else in the motion picture business. Warner says in its suit that Sony "has unethically and illegally sought to steal the services of Guber and Peters and injure Warner as a major competitor of Columbia." Moreover, Warner says, Sony enticed the producers with "unprecedented financial rewards to breach their binding contractual commitments to Warner." Warner also names in its suit the two producers, Sony Corp. of America Vice Chairman Michael Schulof, and Walter Yetnikoff, head of Sony's CBS Records unit.

Sony responded in its countersuit by charging Warner, its chief executive Steven J. Ross, and Warner Bros. unit chairman Robert Daly and President Terry Semel with embarking on an unlawful scheme to interfere with and disrupt Sony's acquisitions. Warner, which is in the process of being acquired by Time Warner Inc., is attempting to "sabotage" Sony's efforts as part of a "plan and scheme to dominate and control the entertainment business," the countersuit from Sony and Guber Peters adds.

Warner also appears to be trying to embarrass Sony by accusing the Japanese company's U.S executives, Messrs. Schulof and Yetnikoff, of dishonorable dealings. In its suit, Warner says that Mr. Ross warned Sony's Mr. Schulof on Sept. 26 at a dinner in Washington, "with Guber Peters in mind" that in the U.S. "it is essential that corporations honor written contracts and do not induce breach of contracts by others." Sony went ahead the next day anyway and executed its own five-year agreement with the producers and agreed to buy their company, the suit adds. Moreover, the suit adds that Sony initially said it wouldn't buy Guber Peters unless the Warner contract was settled. On Tuesday, although a settlement wasn't reached, Sony publicly announced it would acquire Guber Peters. "Sony has thus knowingly and willfully, and over Warner's protests, induced Guber and Peters to repudiate their contract with Warner," the suit says.

Warner's decision to file suit in the wake of its failure to reach a settlement with Sony didn't surprise executives at rival studios, who say Warner is only protecting its own interests. The outcome of the legal battle, they add, could redefine contractual relationships in Hollywood, where the unwritten rule has often been that contracts were made to be broken.

In Warner's case, the studio obviously regards the relationship with Guber Peters as a crucial factor in Warner's recent success and a central part of its future plans. Warner has relied heavily on the two to find and produce movies for the studio, including this summer's hit "Batman." Warner says in its suit that "Guber and Peters claim to have generated over one-half billion dollars in profits for Warner from combined projects," a claim Warner doesn't dispute. And Warner says it is currently financing about 50 new projects being developed by the two producers.

Under an earlier agreement with Warner, the producers were allowed to make movies elsewhere. For example, they made the hit "Rainman" for MGM/UA Communications Co. But when Warner signed a new agreement with the two in March, the terms specifically prohibited them from serving as producers or executive producers of movies for any other studio.

Sony and the Guber Peters executives say in their countersuit, however, that the new contract eliminated language barring the two from serving "in any other capacity" in the motion picture business. And they appear to be relying heavily on an alleged "oral agreement" the two producers claim to have with Warner that would let them out of their written contract in the event that an actual executive post at another company became available. In their countersuit, they say that on two previous occasions -- once in 1987 when they considered a post at Columbia, and once when Messrs. Guber and Peters tried to buy a stake in MGM/UA in 1988 -- Warner was prepared to release them from their contract. The countersuit also charges Warner with making the oral agreement to "falsely induce" them into a new written contract in 1989. Moreover, they say, Warner is trying to cheat them out of "a unique business opportunity" and the fulfilment of their "long-term dream" to run their own studio.

But entertainment industry executives say that the new contract was signed after Guber Peters efforts to take over MGM failed and that Warner may argue in court that the producers' willingness to sign a new long-term contract signaled the end of their search for a movie studio.

Mr. Ross and his team at Warner appear to view the move by the two producers to Sony as a personal betrayal after years of support and friendship. "Warner has been nurturing its relationship with Guber and Peters since 1972, long before their recent success," the Warner suit says. That success, the suit adds, "is due in large measure to the trust and confidence that Warner has reposed in these producers, even in the early years of the relationship when the creative partnership was not particularly profitable for Warner."

Warner, whose executives are the highest paid in the entertainment industry, also charges that Sony induced the two producers to breach their Warner contract by offering them "the most lucrative and expensive package of financial inducements in the film industry," including $2.7 million each in annual salary, deferred compensation of $50 million, as much as 10% of Columbia's cash flow, and as much as 8% of the future appreciation of Columbia's market value. The producers also stand to get more than $50 million from their combined 28% stake in Guber Peters Entertainment from Sony's $200 million offer for the company.

In their countersuit, Messrs. Guber and Peters say they seek $100 million in damages initially from Warner but may seek a higher amount later after determining the extent of damages.

Companies listed below reported quarterly profit substantially different from the average of analysts' estimates. The companies are followed by at least three analysts, and had a minimum five-cent change in actual earnings per share. Estimated and actual results involving losses are omitted.

The percent difference compares actual profit with the 30-day estimate where at least three analysts have issues forecasts in the past 30 days. Otherwise, actual profit is compared with the 300-day estimate. @ ESTIMATE @ (# of analysts) @ ACTUAL --------------- % @ COMPANY NAME EPS 30-DAY 300-DAY DIFF. @ POSITIVE @ Shaw Industries $.48 ... $.41 (5) 17.07 @ Florida Progress 1.47 ... 1.30 (7) 13.08 @ Willamette Indus. 2.08 ... 1.85 (7) 12.43 @ Altera Corp. .15 ... .14 (4) 7.14 @ NEGATIVE @ Neworld Bancorp $.35 ... $.53 (3) 33.96 @ Affiliated Publ .12 ... .16 (3) 25.00 @ Genlyte Group .22 ... .29 (3) 24.14 @ IMC Fertilizer .76 ... .96 (7) 20.83 @ Analysts Intl .29 ... .35 (3) 17.14 @ Morton Intl .54 ... .59 (4) 8.47 @ Boise Cascade 1.34 ... 1.44 (13) 6.94 @ Potlatch Corp. 1.22 ... 1.31 (7) 6.87 @ NBD Bancorp .87 ... .92 (9) 5.43

Source: Zacks Investment Research

McDonnell Douglas Corp. received a $54.3 million Navy contract for F/A18 aircraft for Kuwait.

Propper International Inc. won a $20.2 million Defense Logistics Agency contract for camouflage trousers.

Altama Delta Corp. was given an $18.5 million Defense Logistics Agency contract for combat boots.

Microamerica Inc. said its board authorized the purchase of as many as two million, or 15%, of its common shares outstanding.

The purchases would be made periodically on the open market or in privately negotiated transactions, the company said.

Microamerica, a distributor of personal-computer products, has about 13.5 million shares outstanding.

Advertising agencies' third-quarter earnings are expected to be up modestly from a year ago, securities analysts say.

Andrew Wallach, an analyst at Drexel Burnham Lambert, is estimating Interpublic Group, for example, at 21 cents a share, up from 18 cents a share a year ago. Greg Ostroff, an analyst at Goldman Sachs, is pegging Omnicom Group at 17 cents a share, up from 15 cents a share, and Foote, Cone & Belding Communications Inc. at 55 cents a share, up from 46 cents.

Analysts note, however, that the third period is a minor quarter in terms of absolute profits. Those who watch Madison Avenue say this period, along with the first quarter, is traditionally weak. The fourth quarter is where the real impact is made. "We tend not to read much into third-quarter earnings," Mr. Ostroff says.

Also notable is the fact that Saatchi & Saatchi Co. and WPP Group PLC, two British giants that are principal players in the advertising business, don't report quarterly earnings.

In the industry overall, "profits will increase unless revenues are disastrously lower," said Alan Gottesman, an analyst at PaineWebber Inc., New York. "There are no external indications" to indicate that will be the case, he said. Mr. Gottesman noted that the employee count for the industry is down and that most agencies are watching staffing levels in a bid to closely monitor costs.

Others are cautiously watching the value of the dollar overseas. "From where I sit, the biggest issue for the U.S. agencies is the dollar," said Emma Hill, an analyst at Wertheim Schroder & Co., New York. "For the U.S. companies, the risk is one of disappointment versus better-than-expected because of the dollar." Ad agencies rely heavily on business overseas for their bottom line. The strength of the dollar will hurt the reporting of foreign earnings, many analysts said.

Some agencies, including Interpublic Group's Lintas and Saatchi & Saatchi's Backer Spielvogel Bates, have said that their clients are spending less than they had expected. Few agencies are reporting that their clients' ad budgets are expanding.

All eyes, however, are on the fourth quarter and to reporting by the giant British companies. "Saatchi & Saatchi is having a very tough year," Drexel Burnham's Mr. Wallach said. "It's real guesswork figuring out what they'll earn." That agency, rumored as a takeover candidate, earlier this year said pretax profit for 1989 would trail 1988's already disappointing level. For WPP Group, on the other hand, most analysts are looking for margin improvement and good results considering its acquisition earlier this year of Ogilvy Group.

The involvement of units of two major U.S. banks in separate loans to China has signaled a growing willingness among foreign bankers to resume lending to the Beijing government.

One of the units, BT Asia Ltd., a subsidiary of Bankers Trust New York Corp., this week arranged the syndication of a $50 million, five-year loan to Shortridge Ltd., which is owned by China International Trust & Investment Corp. (Holdings), or Citic. The loan will be used for Shortridge's share of the purchase of a satellite, a BT Asia director said.

The other unit, Chase Manhattan Asia Ltd., a Hong Kong subsidiary of Chase Manhattan Corp., of New York, said it is underwriting a $50 million loan for China's biggest trading company, China Resources (Holdings) Co., for general corporate purposes. Of the total, $30 million can be swapped into marks.

Amid the international outcry following the shooting of students and bystanders in Beijing on June 4, foreign-bank lending to China came to a halt.

Bankers in Hong Kong said this week's Citic loan was an important sign that foreign banks are interested in resuming regular business with China. "It's sort of a benchmark," said a U.S. banker who didn't participate in the loan.

Russell L. Magarity, senior managing director of Chase Manhattan Asia, said "it is time" to start considering loans to China again. Mr. Magarity said Chase hopes to assemble an international group of banks in the lending syndicate, including some of U.S. and Japanese banks with which China Resources has had a strong relationship in recent years. "Right now we think we can successfully syndicate this loan because of China Resources' name," he said.

Indeed, the reputations of China Resources and Citic played a significant role in the decisions. China Resources and Citic are considered exceptionally good credit risks, bankers said. Other loans to China will have to be considered on a case-by-case basis. Beyond the political considerations, banks are concerned about the state of China's economy and about borrowers' ability to make loan payments. Now that the first major syndication of a Chinese loan has proceeded smoothly, a Japanese banker said it will be easier for foreign banks to consider making loans to China.

Citic, which acts as a sort of merchant bank for overseas acquisitions by China, is a relatively independent company. Through Shortridge, it is one of three partners in Asia Satellite Telecommunications Co., which plans to launch a private satellite on a Chinese rocket next year. The other partners are Cable & Wireless PLC of Britain and Hutchison Whampoa Ltd. of Hong Kong. Citic guaranteed the loan.

The loan was syndicated to a group of foreign banks from Europe, Hong Kong and Canada, foreign bankers said; they didn't identify the institutions. BT Asia arranged the syndication but didn't underwrite the loan.

A BT Asia official wouldn't disclose all the terms of the loan but said it was linked to a currency option that allows banks to receive repayment in yen instead of dollars. The official said Citic will pay an interest rate that will be about 0.5 percentage point higher than the amount Citic would have paid for a similar borrowing before June 4. He said it was difficult to calculate the exact interest rate because of the currency option.

Bankers said they believe China Resources' loan costs have risen by about the same amount.

Demand for products in the current quarter should weaken and inflation shouldn't put any upward pressure on prices, say U.S. plant managers in a Dun & Bradstreet Corp. survey.

Fewer plant managers expect higher new orders and output this quarter than in the year-earlier period, according to the survey, which polls 1,500 managers of manufacturing facilities on conditions in their factories and industries.

Plant managers' optimism "has moderated, which is in line with current economic data that indicate slow but continuing economic growth," said Joseph W. Duncan, corporate economist and chief statistician for Dun & Bradstreet, a financial-data company.

The managers expect materials costs to drop in the quarter, leading fewer to forecast higher selling prices, Mr. Duncan said.

Dun & Bradstreet calculates several optimism indexes, subtracting the percentage of managers expecting a decline from the percentage expecting growth.

For overall demand, the fourth-quarter index fell to 28 from 31 last quarter and 32 in the 1988 fourth period. For output, the index was 29, the same as last quarter, but a three-point drop from a year ago. For new orders, the figure again was flat with the third quarter at 29. The latest figure also is down a point from the year earlier.

The U.S. dollar strengthened during the summer and may have damped the managers' hopes for higher demand from overseas. Recent "declines in the dollar should bolster manufacturers' selling opportunities abroad," Mr. Duncan said.

For the next 12 months, each of the indexes for overall demand, production and new orders fell one point from last quarter, to 57, 57 and 59, respectively. The year-earlier figures were 60, 60 and 61.

Dun & Bradstreet's data measuring fourth-quarter costs of making a single unit of a product indicated that "manufacturers foresee weaker prices" for materials "while wage pressures, though still present, are not expected to escalate," Mr. Duncan said.

Bad real estate loans continued to gnaw at third-quarter profits of Southwestern banks, with the notable exception of institutions that cleansed their books with federal bailouts.

"You've got a two-tiered market," said Frank W. Anderson, an analyst with Stephens Inc., Little Rock, Ark. On top, he said, are such dynamos as NCNB Corp. and First City Bancorp of Texas, which acquired big, ailing Texas banks in government-assisted transactions that allowed them to slough off bad loans. They are expected to ring up big profits for the third quarter, Mr. Anderson said.

As for the rest, warns James McDermott, an analyst with Keefe Bruyette & Woods, New York, "asset quality concerns are going to dominate third-quarter reports."

For example, Cullen/Frost Bankers Inc., San Antonio, Texas, is expecting "an uptick in {non-performing loans} related to real estate" in the third quarter, said Thomas Frost, chairman and chief executive. As the only major bank holding company in Texas to survive without a bailout or merger, Cullen/Frost managed only "very modest" earnings in the period, he said. "If the government handed me a big bucket of money I'd look good, too," Mr. Frost added.

NCNB Corp.'s Texas operation, on the other hand, is expected to report an operating profit "in line with {or} perhaps a bit better" than its results in the first two quarters, Timothy Hartman, vice chairman of the Texas unit, said. The Texas unit had an operating profit of $58.7 million in the first quarter and $55.7 million in the second quarter.

NCNB, based in Charlotte, N.C., bought the banking assets of failed First Republic Bank Corp. of Dallas last year in a transaction expected to cost the Federal Deposit Insurance Corp. about $3 billion. (First Republic isn't related to First Republic Bancorp of San Francisco.) Robert Rieke, an analyst with Raucher Pierce Refsnes Inc., Dallas, estimates Houston-based First City's third-quarter net was higher than second quarter earnings of $28.1 million. However, he estimated that per-share earnings stayed "relatively flat" at about the second quarter's $1.19 a share because the total number of shares outstanding increased.

First City was recapitalized last year by a group led by Chicago banker A. Robert Abboud. The FDIC contributed nearly $1 billion to the new organization.

More recent Texas bailouts won't have much impact on the third quarter results of the new parent companies, analysts said. These include the sale of MCorp's failed banks to Banc One Corp., Columbus, Ohio; the sale of National Bancshares Corp. of Texas to Equimark Corp. of Pittsburgh; and the sale of Texas American Bancshares Inc.'s banking assets to Deposit Guaranty Bank of Dallas. The transactions haven't yet been completed and the Texas units are still unprofitable.

Said Ronald Steinhart, chairman of Deposit Guaranty: "You won't see the newly cleansed bank in operation until approximately Dec. 1."

Outside Texas, the biggest real estate nightmare for banks in the region is probably Arizona. "Arizona is going to be a mess," said Keefe Bruyette's Mr. McDermott.

Several banks with operations in Arizona, including First Interstate Bancorp. and Security Pacific Corp., both of Los Angeles, have already indicated they see asset-quality problems. Chase Manhattan Corp., New York, last month took a $126 million charge against earnings related to real estate loans at Chase Bank of Arizona.

Several credit rating agencies recently downgraded the senior debt of Valley National Corp., warning that the Phoenix-based bank holding company is vulnerable to the deteriorating real estate market. "Despite the special addition to reserves in the second quarter, Valley remains poorly reserved against its real estate exposure," Moody's Investors Service Inc. said in July.

One of the few bright spots in the region is Colorado, where a mild economic recovery has helped several banks staunch the flow of red ink. For instance, United Banks of Colorado Inc., the state's largest multibank holding company, resumed a cash dividend earlier this year after recording eight straight quarters of profitability.

More good news comes from New Mexico, where banks didn't have as much opportunity to get into difficulty in the first place. "The state never grew fast enough to get banking organizations in real trouble and the banking organizations were never big enough to lend into trouble," said Mr. Rieke of Raucher Pierce Refsnes.

We don't know who is winning the drug war in Latin America, but we know who's losing it -- the press. Over the past six months, six journalists have been killed and 10 kidnapped by drug traffickers or leftist guerrillas -- who often are one and the same -- in Colombia. Over the past 12 years, at least 40 journalists have died there. The attacks have intensified since the Colombian government began cracking down on the traffickers in August, trying to prevent their takeover of the country.

The slaughter in Colombia was very much on the minds of 450 editors and publishers from Latin America, the United States, the Caribbean and Canada attending the 45th general assembly of the Inter-American Press Association in Monterrey, Mexico, this week. On Tuesday the conference got word of another atrocity, the assassination in Medellin of two employees of El Espectador, Colombia's second-largest newspaper. The paper's local administrator, Maria Luz Lopez, was shot dead, and her mother wounded, while her car was stopped for a red light. An hour later, the paper's circulation manager, Miguel Soler, was shot and killed near his home.

The drug lords who claimed responsibility said they would blow up the Bogota newspaper's offices if it continued to distribute in Medellin. They bombed the Bogota offices last month, destroying its computer and causing $2.5 million in damage.

El Espectador has been a special target because of the extraordinary courage of its publisher and his staff. At Monterrey, publisher Luis Gabriel Cano, although shaken by the murders, issued a statement saying: "We will not cease our fight against drug trafficking. They want to terrify the press and in particular El Espectador because it has always been a torchbearer in this war." This comes from a man whose brother, Guillermo, was murdered in 1986.

The publishers in Monterrey command no battalions, but they agreed to express their outrage with editorials in today's editions. Many will use a common editorial. A final statement yesterday said: "While some advances are being made in nations throughout the hemisphere, the state of press freedom in the Americas still must be regarded as grim as long as journalists and their families are subject to the crudest form of censorship: death by assassination."

The report charged that Panama's Manuel Noriega is not only in league with the drug traffickers but also is bullying the press as never before. "Noriega has closed every independent newspaper, radio and television station and arrested, tortured or forced into exile a long list of reporters," the statement declared.

It added: "In Cuba, public enemy No. 1 of press freedoms in the hemisphere, repression of journalists both Cuban and foreign is worse than ever." And in Nicaragua, promises of press freedom by the Sandinistas "have not materialized."

As it happens, the four countries cited, Colombia, Cuba, Panama and Nicaragua, are not only where the press is under greatest attack but also are linked by the drug trade and left-wing politics. Noriega is close to Castro and may once have been his agent. Sandinistas Thomas Borge and the Ortega brothers are Castro proteges; he backed their takeover of Nicaragua. In Colombia, the drug-financed guerrillas trying to seize the country and destroy democracy include M-19, which Castro has clearly backed.

Robert Merkel, a former U.S. attorney handling drug indictments in Florida, doesn't think for a minute that Castro's much publicized trials of high officials engaged in the drug trade mean he has broken off with the Medellin drug cartel. "If the cartel succeeds in blackmailing the Colombian authorities into negotiations, the cartel will be in control and Fidel can exploit his past relationships with them," he told the Journal's David Asman recently.

The struggle against the drug lords in Colombia will be a near thing. This week, the government arrested Jose Abello Silva, said to be the fourth-ranking cartel leader. He will probably be extradited to the U.S. for trial under an extradition treaty President Virgilia Barco has revived. Later, another high-ranking trafficker, Leonidas Vargas, was arrested and 1,000 pounds of dynamite seized. Mr. Barco has refused U.S. troops or advisers but has accepted U.S. military aid.

President Bush has agreed to meet within 90 days with Mr. Barco, President Alan Garcia of Peru and President Jaime Paz Zamora of Bolivia to discuss the drug problem. It might not be a bad idea to do that sooner, rather than later. After the Panama fiasco, they will need some reassurance. Certainly, the Colombian press is much in need of that.

GREAT AMERICAN COMMUNICATIONS Co., Cincinnati, said it exchanged about $50 million in debentures and notes for 3.65 million of its common shares at $12 a share. As a result of the transaction, American Financial Corp.'s common holdings in Great American declined to 64% from 71%. The broadcasting concern said the debt retired consisted of $35 million of 14 3/8% senior subordinated debentures, $14.2 million of 13 1/4% senior notes and $200,000 of 14 1/8% senior notes of a subsidiary. American Financial is a financial holding company.

Robert L. Corcoran Jr., 45 years old, was named managing director and regional manager of Japan and Asia at this firm's Chemical Bank unit. The post was occupied on an interim basis by Marc Morrison, a managing director in the international-money-markets and government-securities department in Tokyo. Mr. Corcoran most recently was head of administration and portfolio management at the Chemical Realty Group division of Chemical Bank.

Matra Communications S.A., a unit of France's defense and electronics group, Matra S.A., said it expects strong profit growth in both 1989 and 1990.

The company, which is preparing to sell 10% of its shares on the French stock market, said profit could reach between 100 million francs ($15.4 million) and 110 million francs this year, representing increases of between 30% and 44% from the 1988 level of 76.5 million francs.

For 1990, profit growth could slow to between 18% and 20%, reaching between 120 million and 130 million francs, the company said.

The company plans to raise 1.5 billion francs with its share offer, involving the sale of one million shares. Between 1% and 2% of the offering has been set aside for the company's employees. The offering will begin Oct. 24. en

Walker Telecommunications Corp. said it plans to repurchase as many as one million shares from time to time, depending on the state of the market.

The supplier of electronic key telephone systems has 5.1 million shares outstanding and will purchase the shares in the market, and or in privately negotiated transactions. In national over-the-counter trading, Walker shares closed yesterday at 90.625 cents, up 21.875 cents.

Du Pont Co. said its Du Pont do Brasil subsidiary will invest about $19 million to build a multimillion-pound-per-year fluoropolymers plant and technical center in Sao Paulo, Brazil.

The plant, scheduled to operate in early 1992, is part of Du Pont's plan to increase world-wide fluoropolymer capacity 40% by 1992.

Du Pont markets fluoropolymers under the trademark Teflon.

Initial claims for regular state unemployment benefits rose to a seasonally adjusted 333,000 during the week ended Sept. 30 from 328,000 the previous week, the Labor Department said.

The number of people receiving regular state benefits in the week ended Sept. 23 increased to a seasonally adjusted 2,204,000, or 2.2% of those covered by unemployment insurance, from 2,156,000 the previous week, when the insured unemployment rate was 2.1%.

Counting all state and federal benefit programs, the number of people receiving unemployment benefits in the week ended Sept. 23 fell to 1,837,800 from 1,839,600 a week earlier. These figures aren't seasonally adjusted.

Part of a Series}

Marlene Dash would appear to be a marketer's dream come true. The corporate manager likes to dress smartly, both on and off the job. She owns a condominium in Chicago and takes pride in furnishing it well.

Yet Ms. Dash, in her mid-30s, loathes shopping. Lousy service and poor selections at many stores have turned a once favorite pastime into what she calls a "frustrating" experience. These days, she would rather exercise, visit friends or read. "If you don't make it reasonably easy for me," she says of shopping, "I'm not going to waste my time."

Ms. Dash is far from alone. Shopping has become such a chore that more people hate browsing in stores than hate doing household work, according to The Wall Street Journal's "American Way of Buying" survey. Nearly a third of the 2,064 people interviewed by the pollster Peter D. Hart Research Associates said they "do not enjoy at all" window-shopping or browsing. growth of catalog companies that have stolen sales from retail stores for much of this decade. Yankelovich, Clancy, Shulman, a market research firm in Westport, Conn., warns clients that Americans' love affair with shopping is on the rocks: More than half the women it has surveyed in recent years, and an even larger percentage of men, say shopping for clothes is a hassle.

Stressed-out consumers -- juggling jobs, families and leisure activities -- feel they have less time to shop. They also complain about obnoxious and poorly trained salespeople, lower quality merchandise and exorbitant prices.

But underlying these complaints is a more far-reaching change: For many shoppers, the thrill is gone.

Back in the 1970s, when malls were sprouting across the country, consumers were content to browse away an afternoon and buy whatever struck their fancy. Then in the early 1980s, Americans viewed shopping as a quest for the trendiest merchandise or the best bargains they could brag about to their friends.

Now, on the eve of the 1990s, consumer researchers say that for most people, shopping is simply less fun. Retailers hawk look-alike merchandise in stores that are numbingly similar in appearance. Shopping has become "just one of the activities that we have to do," says Susan Hayward of Yankelovich. "It's not an end in itself anymore."

In the Journal poll, more than a third of the people interviewed said they probably wouldn't spend a free hour poking around in stores, even if a prime shopping district were nearby.

That isn't to say consumers don't like new things. But when they go to a store today, they're more likely to think of the trip as a mission rather than an adventure. "They're buyers as opposed to shoppers," says Thomas Rauh, a retail consultant at the accounting firm of Ernst & Young.

Surveys and focus-group research show that most people are indeed shopping more purposefully. Consumers visit fewer stores per trip (an average of three last year, down from 3.6 in 1982, according to consultant Stillerman Jones & Co.) and spend less time in malls (an average of 68 minutes per trip last year, down from 90 minutes in 1982). "I leave rather than hunt for something," snaps Lisa Max, a 46-year-old real estate broker in New York.

Despite such negative attitudes, retailers generally say consumers aren't cutting back on what they buy. "If it is dropping off, it would be more likely that they're shopping less often and buying more when they do shop," says Michael Wellman, vice president of marketing at K mart Corp.

"There's no question our customers' time has become more valuable than ever," says Stephen Watson, chairman and chief executive officer of Dayton Hudson Corp.'s department store unit. But he contends the company's record sales and profits indicate it is making the shopping experience easier. For example, the company is hiring more sales people than in the past and paying them more. It also is laying out remodeled and new stores with a center-aisle design and installing escalators and elevators in more convenient central locations.

Of course, there are still people for whom shopping is a joy, even a passion. But some of those people have complaints, too. Take Cyd Hinman, a mother of two from Norwood, Mass. She often enjoys shopping, but is so fed up with the clerks at a nearby Filene's department store that she refers to them as "idiots."

Twice, Mrs. Hinman picked merchandise off Filene's racks labeled with "sale" signs, only to be told when she got to the cash register that the goods weren't on special. The second time, she demanded that she receive the discount anyway, and the clerk gave in. "I'm willing to spend a lot of money," she says, "but not if I feel like I'm getting jerked around."

Complaints about service are so widespread that six of 10 people in the Journal survey said they have boycotted stores because of the way they were treated. The percentage was even higher -- roughly three-quarters -- among professionals and those earning more than $50,000 a year.

Service has declined just at a time when consumers are more impatient than ever. "The whole tone of voice is different now in terms of what people expect from a store," says William Ress, whose Columbus, Ohio, management consulting firm has surveyed consumers for more than 20 years.

Despite the rising resentment, few stores are making shopping more appealing. Sales people spraying perfume still assault shoppers at many department stores, even though some consumers complain that the spritzers could provide a far more useful service if they were trained to operate a cash register.

Consumers want selection to be easy and efficient, but that's not what most merchandisers want. Retailers generally go to lengths to keep shoppers in their stores as long as possible. Many stores, for example, require customers to walk through a maze of boutiques designed to show off their wares just to find, say, a simple white blouse. But rather than tempt people to buy more, consumer researchers say, this tactic just irritates many shoppers. Over half the respondents in the Journal survey said they rarely buy on impulse anyway.

So what should a retailer do? "Those that do the best job of making the shopping experience enjoyable and making the customer feel like a human being are very well rewarded," says Leo J. Shapiro, a market researcher in Chicago.

He cites Nordstrom Inc., the Seattle-based department store. The chain's strategy: pay sales people an incentive to provide good service and keep more merchandise in stock than competitors.

Other retailers are trying to mollify miffed shoppers by doing away with their decades-old practice of setting high "regular" prices that can later be cut to "sale" levels. Under a new approach being hyped as "everyday low pricing," retailers such as Sears, Roebuck & Co. now run fewer sales. Instead, they set prices between their old "sale" and "regular" prices.

Last month, R.H. Macy & Co. started promising in ads that shoppers in search of women's coats could "cut through all the confusing sales, special buys and clearances out there" and pay what Macy's says is the "lowest prices . . . every day."

Sears started its "everyday pricing" approach in March, but so far sales results don't reflect strong consumer response.

Still, such a pricing strategy just might appeal to people like Connie Bates, a respondent in the Journal survey. She recently walked out of a furniture store because the salesman offered to cut the price of a sectional couch three times. When a store keeps dropping prices, the Farmington, Mich., resident says, "I get suspicious that they're trying to get the most they can out of you."

(See related story: "Diehards Say The Experience Feels Too Good" -- WSJ Oct. 13, 1989)

The European Community and Switzerland signed a treaty granting reciprocal access to their markets for most kinds of insurance products and services.

The accord is an example "of the kind of relations the community wishes to develop with its European partners," said Edith Cresson, the French minister for European affairs who presided over a recent EC Council of Ministers meeting.

As European partners, Mrs. Cresson cited in particular the members of the European Free Trade Association, composed of Switzerland, Austria, Sweden, Norway, Finland and Iceland.

EC and association ministers are scheduled to meet Dec. 19 to discuss economic cooperation. Mrs. Cresson said she hopes the talks will show "a common resolve to go beyond bilateral, sectorial agreements," such as the one just signed with Switzerland.

Swiss President Jean-Pascal Delamuraz said the insurance pact could "pioneer" a broader agreement between the Community and the association.

The treaty allows Swiss insurance companies to open branches in the EC, and vice versa, without restriction. But it doesn't permit selling insurance across borders without establishing branches. The treaty needs to be approved by the European Parliament, which is expected to endorse the measure, EC officials said.

The agreement, which had been 16 years in the making, covers general-insurance services and excludes life insurance and reinsurance. Because Swiss and EC insurers are widely present on each other's markets, the accord isn't expected to substantially increase near-term competition.

An important element in the accord, EC officials said, is a clause that provides for bilateral consultations when one party decides to modify its internal insurance legislation. A joint panel would decide whether the changes are compatible with the treaty or whether the treaty needs to be amended to cope with the changes.

Mrs. Cresson said a similar clause could be useful in future accords between the EC and other countries.

Chief executive officers in the New York region say they share a national pessimism about the economy, yet are bullish on their own prospects, according to a study of business executives.

One particularly positive note in the study of chief executives in the tri-state area, commissioned by National Westminster Bancorp, is that as many as 88% of the executives intend to expand their businesses or at least maintain employment levels in 1990. Employment at financial-related companies in the New York area were hit hard after the 1987 stock market crash.

The survey examined the opinions of 550 randomly selected companies in the New York metropolitan area -- Connecticut, Long Island, New York City, Westchester County and New Jersey -- with annual sales between $5 million and $250 million.

Executives in the area have grown more pessimistic about the performance of the national economy. When the study was taken in 1988, 32% of the respondents thought the national economy was worse that year than the year before, while in 1989, that stance was taken by 41% of the executives. The pessimism was greater among the larger -- and more national -- companies.

Looking ahead, the majority of area officials expect interest rates to decline and inflation to rise, while 44% of the chief executives feel a recession is likely by the end of 1990.

On the regional level, executives had less good news to report about their own businesses. Only 49% of the executives reported improved company performance this year, down from the 60% in the 1988 study. Predictably, the year ahead looks brighter; 63% of the executives anticipate better company performance in 1990, while only 10% envision a decline.

A good sign for the long-term health of the region is that chief executives were generally "quite satisfied" with the region as a business place, saying its benefits consistently outweigh drawbacks. Highest marks went to the availability of professional business services, which 51% of the executives consider the top benefit. The local marketplace and availability of professional employees also were ranked high. Among major drawbacks to the region, 63% consider the level of state taxes at the top of the list, followed by 54% who had the same opinion on local taxes. Coming in third, 40% said it was the cost of non-professional employees.

On questions of employment, 40% of the executives increased their work force since last year, and 44% expect to expand next year. Only 9% reduced their payrolls in the past year.

For the second year in a row, New Jersey was rated as the region's most desirable place to do business. Among all of the executives surveyed who would consider a move, 50% would look at New Jersey, compared with an average 23% who would consider other states in the region. In one of the highest degrees of loyalty shown in the study, of those New Jersey executives considering a move, 74% would stay within the state. But one-fourth of the state's executives listed transportation problems as a drawback.

Chief executives in New York City showed a noticeably high expectation of improved company performance in the next year. In New York, 75% of the executives predict their companies' performance will improve in 1990, compared with an average of 63% from chief executives from the other locales who feel the same way.

Westchester executives reflected the most bullish prospects for employment. More companies in Westchester than any other location have increased the number of their employees in the past year. In 1990, Westchester chief executives lead the way in plans to increase their number of employees. In Westchester, 51% of the executives anticipate hiring more, while in Long Island that number was 39% and in Connecticut 42%.

Ronald J. Berens was elected to the new post of senior vice president-U.S. apparel group, effective Nov. 1. He will be responsible for the apparel operations of the retailer's Holtzman's Little Folk Shop Inc. and Richman Brothers Co. units and the Susie's division of its Kinney Shoe Corp. unit. Mr. Berens, 50 years old, currently is president and chief executive officer of the Little Folk unit.

Suzuki Motor Co.'s U.S. sales arm has named Gary Anderson its top U.S. official in the wake of a series of resignations last month.

Three senior executives, all Americans, quit in September. Doug Mazza, former vice president and general manager and at the time the top American, said in a prepared statement that his and the other resignations were prompted by "changes in the company's operating goals and philosophies."

Mr. Anderson, who joined American Suzuki Motor Corp. in June 1987, gets the title of marketing director for the company's automotive division. He inherits "bits of several positions," said a Suzuki spokeswoman, who added that a reorganization last month has eliminated some previous posts.

In his new job, Mr. Anderson will oversee all sales, advertising and dealer development activities in addition to formulating marketing strategies. Some of these duties had been handled by Mr. Mazza and others by John Dorsey, former director of sales, and Larry Messelt, former national sales manager. Messrs. Dorsey and Messelt were the other two executives who resigned in September.

Suzuki sales so far this year, at 24,405 cars and sport utility vehicles, are less than half the level of a year ago, despite the introduction of two additional vehicles, including Suzuki's first U.S. car. The company hasn't recovered from claims by Consumer Reports magazine that its Samurai utility vehicle was unsafe, even though the National Highway Traffic Safety Administration refused to open a safety investigation into the allegations.

"Suzuki recognizes its responsibility to boost dealer confidence and improve direct communication with its dealers and field personnel on its plans and strategies," said Mr. Anderson in a prepared statement.

Mr. Anderson was most recently Suzuki's New York regional sales manager. He also served as manager of dealer development.

Cummins Engine Co. shares dropped yesterday after the company disclosed it will have to correct defects in pistons installed in some of its engines.

In a terse release, the maker of diesel engines, parts and power systems said it has "identified a problem" with pistons used in its model K and KV diesels since May 1. The high-horsepower motors are used in heavy applications such as construction and mining equipment.

Cummins said the problem relates to recent modifications in the design of a piston it buys from an outside supplier. None of the engines have failed to date, said a spokeswoman, adding that the defect doesn't represent a hazard.

The company wouldn't identify the supplier, nor would it say how many of the defective engines it has produced. A spokeswoman noted, however, that such engines represented only 2.5% of the company's overall production in the first six months of the year.

The company said it will replace all pistons in the affected engines, and as a result, will "supplement K and KV warranty accruals." The spokeswoman declined to say how much money the company will have to spend on the repairs; the company recently halted production of the models until replacement pistons are available Oct. 16.

In composite New York Stock Exchange trading yesterday, Cummins shares stumbled $2 to close at $52. The company's shares traded as high as $64 last month, before Cummins disclosed in late September that it expects to report a "substantial" third-quarter loss because of deteriorating demand and other difficulties.

Major steel companies, stung by soft demand from car makers and eroding prices, are expected to report that third-quarter operating profits plummeted to possibly the lowest levels in two years.

"This will be the worst quarter since the third quarter of 1987, when steel companies were just on their way up," predicted John Tumazos, an analyst with Donaldson, Lufkin & Jenrette Securities Corp. The fourth quarter could be even more dismal.

"We are in the midst of a very severe price drop that will really hit in the fourth quarter," said Peter Marcus, an analyst with PaineWebber Inc. A rebound in those prices is expected sometime after the winter of 1990.

After enjoying a 24-month honeymoon of full production, rising prices and lower costs, steelmakers are facing declining volume from disappointing automotive, appliance and even capital goods markets.

The consensus is that major steelmakers earned between $30 and $35 for each ton of steel shipped, compared with $49 in last year's third quarter. The latest quarter is also down from the $51 a ton earned in the second quarter, when the industry benefited from modest price increases and lower raw material costs. Mr. Marcus expects fourth-quarter profits to drop to about $25 a ton.

Along with lackluster sales to car makers -- their largest customer -- steelmakers are losing shipments to their second largest customer, steel service centers, which are trying to reduce inventories. The Steel Service Center Institute reported in September that 72% of its members believe inventories were "too high," with 65% planning to reduce those levels during the next six months.

Christopher Plummer, an analyst with WEFA Group, noted that the capital goods market, which had been stronger than automotive and appliance markets, is showing signs of weakness as well. Companies, concerned about the economy and trying to slash their own costs, are backing off capital improvement programs, he said.

Overall, second-half steel shipments are expected to drop about 15% to 36 million or 37 million tons, which some analysts say could cost the industry $700 million in lost income.

Two companies, in particular, were hurt by unusual events in the third quarter. Bethlehem Steel Corp., the nation's second largest steelmaker, was hampered by wildcat coal strikes, a spot strike at its freight car operation and blast furnace problems at its crown jewel Sparrows Point plant. Charles Bradford, an analyst with Merrill Lynch Capital Markets, predicts Bethlehem earnings dropped more than two-thirds to about 50 cents a share, from $2.35 a year ago, excluding major nonrecurring items.

National Steel Corp., the nation's sixth largest steel company, predicted at the beginning of 1989 that the third quarter would be its best. However, an initial rejection by steelworkers of a new labor accord sent nervous National Steel customers scrambling for alternative suppliers. Moreover, National Steel is tied closely to the sluggish automobile industry.

One other factor for some steelmakers: higher costs associated with new labor contracts. Inland Steel Industries Inc., which recently negotiated an accord that calls for immediate and significant wage increases, is expected to see earnings drop to less than $1 a share from $1.70 a year earlier because of the pact, as well as disappointments in its steel service center operations.

About the only major steelmaker expected to post improved results is USX Corp., which once again will post gains from asset sales. Many analysts initially raised earnings forecasts for the nation's largest steelmaker as a result of the coming sale of reserves from its Texas Oil & Gas unit. The expected $1 billion-plus proceeds are expected to be used to reduce debt and buy back shares. One wild card in USX's future earnings is investor Carl Icahn, who boosted his stake in USX and is urging more restructuring.

Recent order rates indicate that the fourth quarter, a time shipments usually pick up, will be weak as well. Merrill Lynch's Mr. Bradford said, "We haven't seen the pickup in flat rolled orders that we should have." Flat rolled steel is the industry's major product.

Typically, steelmakers would look to the export market to unload excess capacity. But that market is hurting as well. PaineWebber noted that the world steel export price of cold-rolled steel has dropped to $460 to $480 a metric ton from a high of $560 this spring. Moreover, the relative strength of the dollar and lower world prices may result in increased sales in the U.S. by foreign producers offering lower prices.

There are some bright spots for the industry. The service center association reports that shipments were up in August, indicating a resurgence in demand for carbon flat rolled and stainless steel products. John Jacobson, an analyst with AUS Consultants, also said he believes steel production costs are coming down because of increased efficiencies at major mills.

I was profoundly moved by the incongruity of modern American life illustrated by your Sept. 20 page-one article "Country Doctor: How a Physician Solved Riddle of Rare Disease in Children of Amish."

Here is a young man who honestly understands what being a physician means and what it requires. It requires delivering quality medical care to those in need. It requires doing the utmost within oneself to alleviate the illness and suffering of others. The physician providing such care derives his reward from being fulfilled as a provider, and from realistic charges for his care.

Though Holmes Morton fulfills the "requirements" for being a true physician, our so-called sophisticated society and its medical system fail to appreciate the value of such a dedicated physician. Otherwise, why is there not a rush of funds from medical circles or the related medical-support industry -- i.e. pharmaceutical companies, etc. -- or, most significantly, from all of us to support this doctor and his patients, to support a clinic to further the work of resolving human suffering?

Ted Ferrier Jr.

Dallas

---

Having grown up among the Amish in Iowa, I think I can appreciate more than most the difficulty of Dr. Morton's work. The average person can hardly imagine the suspicion, bred by centuries of isolation and persecution, among the Amish toward outsiders and things modern. This, in my experience, is particularly true of their attitude toward modern medicine. Dr. Morton's success is not only a measure of the outstanding quality of his work, but also of the desperation the Amish must feel in the face of this horrendous disease.

Sadly, the article also contains a profound statement about the current state of academe, the professions in particular and American society in general. Some experts were quoted as speculating on the detrimental effects of Dr. Morton's work on his career. According to these experts, he will find it difficult to get grants and will lose access to sophisticated laboratories. They point out that he "will be, at best, on the very outer circle." As a marginal academic myself, I thought we were at least discreet enough to keep our real concerns hidden behind our academic robes and in our faculty cliques.

We can only hope that more people will choose to be "on the very outer circle."

James E. Groff

Associate Professor

University of Texas at San Antonio

San Antonio

---

How very refreshing to read about Dr. Morton after all the articles about the Boeskys, Millkens, Icahns, Trumps and such like; about S&L officials and self-seeking officials and legislators, federal and state; about corporate executives whose sole concern is the "bottom line," all of which lead to the conclusion that as a society we have a woeful sense of values and give no thought to what "life is all about." Here is an individual to be greatly admired and respected.

Sandro Mayer

Fishkill, N.Y.

Owens-Corning Fiberglas Corp. said it expects to report that third-quarter operating profit fell "substantially" from a year earlier, when the maker of insulation, roofing and plastic materials had profit before extraordinary items of $1.36 a share.

In a prepared statement, the company said the decline "reflects reduced activity in construction, marine and transportation markets."

An Owens-Corning spokesman said the company still expects to post net income for the just-ended third quarter but he declined to be more specific. He also declined to comment on expectations for the fourth quarter.

Owens-Corning closed at $30.75 a share, down $2.875, in New York Stock Exchange composite trading following the news.

In the 1988 third quarter, Owens-Corning had profit from continuing operations of $57 million. A charge of $6 million, or 15 cents a share, related to the purchase of company debt made net $51 million, or $1.21 a share. Sales in the 1988 third quarter totaled $760 million.

The spokesman said the problems in the construction market relate mainly to "reduced volume in insulation and roofing, especially reroofing and commercial roofing products." He said roof repairs were relatively strong in Texas and should be strong in the Southeast during the fourth quarter as home and building owners repair property damaged by Hurricane Hugo. "But nationally, based on trends so far this year, we expect {that segment} to remain weak over all," he said.

The spokesman said sales of reinforced-fiberglass material to the boat-building industry also were weak, largely because of softening in the marine market. Weakness in the auto industry also is expected to continue through the rest of the year. Car and truck production was strong earlier this year, but expectations of slower sales in the fourth quarter have cut manufacturers' output forecasts. However, Owens-Corning was able to offset that decline somewhat with new business at General Motors Corp., which recently introduced a new, plastic-body van.

Owens-Corning expects to post third-quarter results by the end of next week, the spokesman said.

In reference to your Sept. 11 article "ROTC Regains Respect on Campuses as Graduates Fare Well in Workplace," we want to clarify an erroneous impression regarding the Villanova Naval ROTC Program for 1971-1974. Joseph Hebert III was incorrectly identified. He was not an instructor at Villanova but was a recruiter who traveled to many universities. The Naval ROTC program at Villanova never held meetings at fraternity houses as we have no fraternity houses. Villanova University and the surrounding community have supported the Navy 100% every year since World War II and the university is recognized as unequaled in providing the best of support to the Navy. All that occurred during the Vietnam era was an occasional sign-carrying student near the parade ground in peaceful protest, but no effort was made to disrupt the Naval ROTC activities.

Villanova and the U.S. Navy are very proud of their superb relationship over the past 50 years.

The Rev. L.C. Gallen

Vice President for Academic Affairs

Villanova University

Villanova, Pa.

As India gears up for general elections to be held by January, television is emerging as a powerful political tool -- and a highly controversial one.

Television is beamed into 74% of the country's villages, up from 49% during the 1984 general-election campaign. The government hopes to get broadcasts into all of India's 57,500 villages eventually.

But the government is essentially the only broadcaster. It controls the sole national TV network, Doordarshan, and the only national radio system, All India Radio. TV news coverage has generally favored the government.

In recent months, however, critics say the coverage has been so biased toward Prime Minister Rajiv Gandhi and his ruling Congress (I) Party that what is labeled news is merely propaganda. With the elections approaching, critics say the manipulation of such an influential medium poses a threat to India's democratic traditions.

"In a country with our measure of literacy, television is becoming a serious impediment in the way of free and fair elections," says Lal Krishna Advani, an opposition-party leader and a former minister of information and broadcasting. "It tilts the balance totally in favor of the ruling party."

But Kamal Kant Tewary, minister for information and broadcasting, says: "We are the elected representatives of the people, and we will do whatever we think is fit and in the interests of the people."

There is general agreement on one point: The elections are likely to be the most uncertain since 1967. Many say Mr. Gandhi and Congress (I), with seesawing popularity and an arms scandal that has tarnished the government, stand a chance of losing power. The arms scandal involves a report by India's comptroller and auditor general, which cited lapses in the government's evaluation and purchase of artillery guns from a Swedish arms company.

Television came to India in 1965, when black-and-white broadcasts began in New Delhi. Broadcasts to other cities didn't start until 1972, and color broadcasts debuted just seven years ago.

In 1980, the country had 1.6 million TV sets; today there are 20 million. That's a small number for a nation of 800 million people, but a single set might have much of a village for its audience. A sizable portion of illiterate Indians now rely on television for news they used to hear third or fourth hand, if at all.

Doordarshan is controlled by the Ministry of Information and Broadcasting and often takes orders directly from the prime minister's office, some Doordarshan staff members contend.

According to critics, the shift in Doordarshan's news coverage from generally favoring the government to outright bias began in May. From around that time, the critics say, items on Mr. Gandhi and Congress (I) have increasingly dominated the nationwide evening news and have been overwhelmingly positive, while the opposition has been given short shrift or blatantly abused.

In May, a Doordarshan news bulletin quoted excerpts from a newspaper article by an opposition leader. The article criticized both the government and the opposition, but Doordarshan aired only the parts criticizing the opposition. This was merely news judgment, says Mr. Tewary, the information and broadcasting minister.

In the same month, a group of politicians circulated a photo of a top opposition leader, Ajit Singh, socializing with an alleged drug smuggler. Newspapers carried the photo on their front pages. Doordarshan showed it on the nationwide news broadcast. The next day, a different group of politicians produced a photo of Mr. Gandhi standing next to the same alleged drug smuggler. Newspapers again gave it front-page play. Doordarshan ignored it. Mr. Tewary says the prime minister is photographed with many people and that therefore the photograph wasn't news.

But a senior reporter at All India Radio, who declines to be identified, says: "We get orders from a chain of people. We are a government news agency and are expected to project the government."

For all the criticism of what is seen as government propaganda, many media experts say it could be counterproductive. Says Probhat Chandra Chatterji, one of the pioneers of Indian broadcasting and a former director-general of All India Radio and Doordarshan: "It is debatable whether this propaganda will bring votes to the government. By and large, people think that it will turn the people away."

Troubled British defense contractor Ferranti International Signal PLC replaced the head of its scandal-plagued U.S. division.

Ferranti said Joseph Zilligen, 49 years old, chairman of Ferranti International USA, is "relinquishing" his post. Succeeding him as chairman of the large, Lancaster, Pa.-based unit, is a longtime Ferranti executive, Albert Dodd. Mr. Dodd, a 53-year-old Briton, is a Ferranti board member and managing director of Ferranti's instrumentation division.

The U.S. unit is at the center of what Ferranti has called a "serious fraud" that has rocked the British company for the past month. Ferranti acquired the U.S. business last year, in a merger with the then International Signal & Control Group PLC.

An International Signal unit, according to Ferranti, reported on its books #215 million ($332.5 million) of weapons contracts that didn't exist. The falsified figures inflated International Signal's reported assets, and increased the price Ferranti paid when it bought the company, according to Ferranti officials.

Mr. Zilligen's departure is the latest fallout from the scandal. Ferranti has said it expects an accounting correction that would eliminate nearly half its reported net worth, and it's seeking a buyer to repair its finances.

British Aerospace PLC and France's Thomson-CSF S.A. are leading contenders for a joint Ferranti bid. Yesterday, a London brokerage firm, Hoare Govett Ltd., confirmed that it purchased on Wednesday 5.7 million Ferranti shares at 56 pence (87 cents) apiece on behalf of British Aerospace. The purchase boosts the British Aerospace-Thomson stake to 12.98 million shares, or 1.7% of the stock outstanding.

A Ferranti spokesman declined to comment on whether the management shuffle is related to the financial scandal, but called it generally part of the "integration" of International Signal into Ferranti since the 1988 merger. He said Mr. Zilligen remains a Ferranti director, but will also be succeeded by Mr. Dodd as chief executive of Ferranti Italia.

Mr. Zilligen, through a spokesman in Lancaster, declined to comment. The executive was a colleague since 1980 of International Signal founder James Guerin, who left International Signal and Ferranti last spring.

Roy S. MacDowell Jr., founder of MacDowell Co., a construction and site-development concern, was named a director of this bank holding company, expanding the board to seven members.

The dollar drifted lower in indecisive trading, its strength sapped by concern that the Federal Reserve is gently easing monetary policy.

Despite reserve-draining operations by the Fed yesterday and on the three preceding business days, some analysts say the central bank is subtly relaxing credit.

They say the Fed's draining operations have been necessary to address a seasonal surfeit of reserves, but note that the actions haven't been tough enough to prevent the federal funds rate from easing to about 8 3/4% from its recent level of 9%. The federal funds rate is the overnight rate banks charge each other.

"They're draining in a consistently less aggressive manner and at a lower level," said James T. McGroarty, a senior vice president at Greenwich Capital Markets.

But others analysts say opinion differs markedly on whether the Fed is softening its credit stance, noting that the market's muted reaction reflects this division.

"We just don't know enough yet to definitively say that the Fed has eased . . . the fed funds rate still is in a band around 9%," said one economist.

Speculation that the Fed would sharply ease its credit reins was damped earlier this week when Chairman Alan Greenspan said central banks shouldn't focus too much on intermediate goals for exchange rates and interest rates.

In late New York trading Thursday, the dollar was quoted at 1.9083 marks, down from 1.9166 marks late Wednesday, and at 144.17 yen, down from 144.57 yen late Wednesday. Sterling was quoted at $1.5523, up from $1.5463.

In Tokyo Friday, the U.S. currency opened for trading at 143.60 yen, down from Thursday's Tokyo close of 144.60 yen.

Many foreign exchange traders remain skeptical that a credit-softening is in the offing. They plan to look for clues in two economic indicators due out today, one on the producer-price index and the other on retail sales, both for September.

"The market believes PPI will confirm Greenspan's concern about inflation," said Francoise Soares-Kemp, a vice president with Credit Suisse in New York. She said the market has already reacted to "that particular prompting" and is unlikely to bid the dollar significantly higher.

Higher energy and auto prices are expected to have pushed producer prices up 0.3% in September after declining in August and July. Retail sales are expected to have remained flat in September, according to economists, following gains of 0.7% in August and 0.5% in July.

A long-awaited speech by British Chancellor of the Exchequer Nigel Lawson failed to bolster the flagging pound and left many market participants with a decidedly bearish view of sterling.

Vowing to continue his government's strategy of combating inflation with high interest rates, Mr. Lawson told the Conservative Party conference that the battle to rein in inflation required a strong currency. The Tories are "not the party of devaluation," he said.

But Mr. Lawson failed to outline specific policy changes or say how the British government planned to support the beleaguered pound. He also avoided any mention of when London would bring sterling into the exchange rate mechanism of the European Monetary System, and warned there are "no easy answers" to Britain's economic problems.

Some market analysts see early entry into the EMS exchange rate mechanism as one of the few alternatives left for stabilizing the pound. But entry has been opposed by Prime Minister Thatcher, who insists Britain should join from a position of strength.

Wednesday's discount rate increase in Japan continued to dominate trading in Tokyo, with dealers trying to guess what the Bank of Japan and the Fed will do following the failure of the rate boost to depress the dollar.

The Bank of Japan entered the market several times in the morning to sell dollars for yen, traders said. European dealings were dominated by cross activity, highlighted by sterling.

On the Commodity Exchange in New York, gold for current delivery settled at $363.40 an ounce, up $1.40. Estimated volume was a light 2.2 million ounces.

In early trading in Hong Kong Friday, gold was quoted at $363.35 an ounce.

COASTAL Corp. said it completed the public offering of 9.2 million common shares and $200 million of 15-year senior debentures. The diversified Houston energy concern said combined proceeds of about $580.6 million will be used to retire and refinance outstanding debt. Underwriters for the offerings included Drexel Burnham Lambert Inc. and Shearson Lehman Hutton Inc.

Gordon A. Paris, 36 years old, was named managing director in charge of a new division, the corporate restructuring group, at this investment banking and brokerage firm. In April, Mr. Paris joined Kidder from General Electric Capital Corp., where he was a vice president. Kidder is about 80%-owned by General Electric Co., Fairfield, Conn., which also owns GE Capital.

Tokyo stocks fell sharply as the dollar remained strong despite Wednesday's half-point discount rate increase by the Bank of Japan.

London shares recovered some lost ground, largely on technical factors as Chancellor Nigel Lawson's speech to the Conservative Party conference was viewed as basically neutral for the market.

Tokyo's Nikkei Index of 225 issues, which fell 136.28 points Wednesday, closed at 34795.05, down 445.02. The decline of nearly 1.3% left the index below 35000 for the first time since Sept. 25.

In the first hour of trading in Tokyo Friday, the Nikkei Index rose 145.96 points to 34941.01.

Thursday's volume on the first section was estimated at 650 million shares, compared with 751 million Wednesday. Declining issues outpaced advancers 857-161, with 110 unchanged. The Tokyo Stock Price Index of all issues in the first section, which lost 13.07 Wednesday, was down 36.89, or 1.4%, to 2623.60.

The market opened at what proved to be its high and continued to slip toward the end of the day. Traders said the reason its drop was larger than Wednesday's moderate loss was that investors began selling their holdings when they saw that Wednesday's rise to 3.75% in the discount rate -- the central bank's base rate on loans to commercial banks -- failed to curb the dollar's rise against the yen.

A stronger dollar concerns Japanese stock investors because it contributes to Japanese inflation, particularly by raising oil and other energy and natural resource prices, which are denominated in dollars. In addition, higher prices for imports allow domestic manufacturers to increase their own prices.

Moreover, the current high level of the U.S. stock market, and the possibility of U.S. interest rates being cut or Japanese rates being raised again to keep the dollar down, might draw funds currently invested in Japanese equities into the U.S. market, some investors fear.

Masami Okuma, senior trader at UBS Phillips & Drew International, said expectations of another increase in the discount rate already are causing some investors not only to stop buying but also to dump some of their recently acquired shares.

Yoshiaki Mitsuoka, manager of the investment information department at Daiwa Investment Trust & Management Co., said the market had been sustained recently by smaller issues with relatively low price-earnings ratios. Prices of such shares, he said, now have risen an average of 57% in the past six months, making them less attractive for fresh buying.

Yukio Itagaki, director of the fund management department at Kokusai Investment Trust Management Co., said the discount rate increase didn't have much effect on the actual market environment, as short-term interest rates already had been above 5%. And as the rate on newly issued three-month certificates of deposit went up to 6.2% Wednesday, institutions and corporations had little incentive to invest new funds in stocks.

The higher discount rate discouraged institutions from holding steel and construction shares, traders said. Nippon Steel fell 10 to 698 yen ($4.83) a share, Sumitomo Metal lost 19 to 677, and Kobe Steel was down 9 at 690. Kajima was down 100 at 1,900, while Ohbayashi lost 60 to 1,500.

Shipbuilding issues also were sold off. Kawasaki Heavy Industries fell 37 to 903, and Mitsubishi Heavy Industries was down 30 at 1,010. Among housing issues, Misawa Homes lost 140 to 2,830, Sekisui House declined 70 to 2,400, and Daiwa House lost 100 to 2,470.

Retail issues, which advanced in September on speculation about mergers and acquisitions in the sector, were sold on profit-taking, traders said. Seiyu was down 240 at 2,710, Daiei fell 70 to 2,980, and Isetan lost 170 to 4,720.

Some of the blue-chip issues that had gained in the previous couple of days were lower as investors retreated quickly. Hitachi lost 10 to 1,510, Toshiba was down 40 at 1,130, and Toyota Motor lost 30 to 2,820.

Among the few winners was Sharp, which attracted investors because of growing demand for its liquid crystal projectors, traders said. Sharp gained 20 to 1,550. Other gainers included Nippon Shokubai, which rose 70 to 2,270, Nikon, up 30 to 1,620, and Aiwa, which gained 120 to 2,000.

In London, the Financial Times-Stock Exchange 100-share index finished 19 points higher at 2237.8. The Financial Times 30-share index rose 20.4 to 1817.7. Volume was 437.4 million shares, down from 503.2 million Wednesday.

Chancellor Lawson, who has been under political fire for his decision a week ago to force U.K. banks' base lending rates up to 15%, an eight-year high, addressed the governing Conservatives' annual conference on current economic issues, and dealers said the speech was exactly what the market had expected.

"It was a good party political conference speech," a dealer with a large U.K. market-making operation said. "He didn't calm any fears or anxieties, but at least he didn't create any new ones."

Dealers attributed the day's advances largely to a technical rebound from the sharp declines that followed last week's base-rate increase. They also cited markdowns by market-makers seeking to generate some business and a general absence of active selling.

There was also some speculative energy that helped to support the FT-SE 100 later in the session, when Wall Street showed signs of weakness early in its trading day. That energy came in part from renewed rumors that U.S. takeover specialists Kohlberg Kravis Roberts are preparing to make a takeover bid for industrial concern BTR rather than simply take a 15% stake in it. Dealers also pointed to active options dealing in the stock recently and said some of the options had been exercised. BTR ended 7 higher at 437 pence ($6.76) a share.

Ferranti International Signal rose 1 1/2 to 58 on 8.5 million shares. British Aerospace said earlier in the week that it was considering making a joint bid with France's Thomson-CSF for Ferranti.

ASDA Group, a U.K. food retailer, closed 4 higher at 163 after holders approved the company's acquisition of 61 stores from Isosceles. ASDA was relatively active at 6.3 million shares.

Other companies in the food sector also firmed on active volume, with Argyll Group gaining 8 to 223, Tesco up 1/2 to 194 1/2 and J. Sainsbury advancing 3 to 255.

Blue-chip issues attracted institutions looking for defensive positions amid the current doubts about the future of the U.K. economy, dealers said.

British Steel edged 2 higher to 126 1/2 on 8.3 million shares, British Telecommuncations settled 6 higher at 268, and British Petroleum gained 1 to 307 1/2.

In other European markets, share prices ended higher in Frankfurt, lower in Paris, Brussels and Amsterdam and mixed in Stockholm, Milan and Zurich. South African gold stocks were slightly firmer.

Elsewhere, stocks rose in Taipei, Singapore, Seoul and Manila and were lower in Hong Kong,