Profit-Takers Push Dow Down 39.74

Stocks dropped sharply Thursday as investors, nervous about a rise in interest rates, sold equities to take profits from a record-shattering rally.

The Dow Jones industrial average declined 39.74 to 5,159.39 after reaching new heights in each of the three previous days.

Declining issues led advancers by nearly 9 to 5 on the New York Stock Exchange, where volume was moderately heavy at 381.49 million shares as of 4 p.m., down from Wednesday’s pace.

Traders said the drop in prices was magnified by computer-driven sell programs. The blue-chip index was down more than 50 points around 3:15 p.m., prompting the New York Stock Exchange to restrict program trading.

“There is extraordinary skittishness and nervousness among small investors and large investors,” said Hugh Johnson, First Albany Corp.’s market strategist.

“Everyone has been caught by surprise by this move up in stocks since the end of November. It has dazzled them but made them extremely nervous. They’re just simply going to cash it in.”

Some of the stocks that moved substantially:

NYSE

Fieldcrest Cannon fell 2-7/8 to 18-1/4.

The company said it will report a substantial loss from operations for the fourth quarter and near break-even results for the year, and close two yarn facilities, resulting in a pretax charge of $2 million to $4 million in the fourth quarter. The textiles maker blamed weak retail demand.

Navistar rose 3/4 to 12-1/8.

J.P. Morgan upgraded the stock to “market performer” from “underperformer,” saying it has become cheap, and the heavy equipment manufacturer’s cost cuts may be showing some results.

NASDAQ

Microsoft fell 1/8 to 90-1/2.

The software giant elaborated on plans to revamp its Microsoft Network, and introduced its new productss for the Internet, including software to help create and deliver information on the World Wide Web. Meanwhile, Thursday’s Wall Street Journal quoted unidentified sources as saying that NBC is negotiating to have Microsoft become a partner in a 24-hour news channel the network wants to launch.

Sun Microsystems rose 3-3/8 to 93-1/8.

IBM licensed Sun Microsystems’ Java programming language and said it will use Java technology in its Internet products, including web browsers and web servers, and in its Lotus Notes integrated messaging and groupware software.

Learning Co. rose 3-7/8 to 67-1/8.

Softkey rose 1-7/8 to 31-1/8.

Broderbund fell 1 to 58.

Educational software maker Learning Co. has agreed to a sweetened, $606 million takeover bid by SoftKey, terminating an earlier deal with Broderbund Software.

ValueJet fell 3-1/8 to 21-1/4.

Smith Barney downgraded the airline’s stock to “neutral” from “outperform.”