Stocks Sag as Rally Ends; Dow Off 4

Prices sagged in the stock market Tuesday after the rally of the past three sessions faded.

Big-name auto and technology issues led the retreat in a session of moderate activity.

The Dow Jones average of 30 industrials, up 27.72 points in the last three trading days, slipped back 4.20 to 1,273.30.

Volume on the New York Stock Exchange came to 97.36 million shares, up from 85.83 million on Monday.

Before the market opened, the Commerce Department reported that retail sales rose 0.9% last month. At the same time, it revised the drop originally reported for March from 1.9% to 0.7%.

Some observers said the retail sales figures, upbeat as they were, did not look strong enough to deter the Federal Reserve from considering moves such as a discount-rate reduction to relax its credit policy. However, brokers said the market apparently yielded as the session progressed to sellers looking to cash in on the recent rise in stock prices.

On the basis of merger rumors, Signal Cos. ranked third on the Big Board’s list of most actively traded issues with 1.41 million shares changing hands. Signal closed at $39.75, up $2.50.

A spokesman for the La Jolla-based company refused to confirm or deny any acquisition or merger plans.

Signal is flush with about $1 billion in cash and a $1-billion line of credit. Both Ford Motor and Allied have been mentioned as companies with an interest in merging with Signal.

A merger with Allied “would make sense” because the combined company could “get rid” of otherwise marginally profitable operations, according to analyst John Simon of Seidler Amdec Securities.

Among leading computer and technology stocks, International Business Machines dropped 2 to 128, Digital Equipment 2 to 103 7/8, Texas Instruments 2 1/2 to 92, Data General 1 to 38 1/2 and Hewlett-Packard 5/8 to 34.

In the auto sector, General Motors fell 1 to 66 1/2, Ford Motor lost 1 to 41, American Motors was down 1/8 at 3 and Chrysler was unchanged at 34 5/8.

General Electric dropped 1 to 58 7/8.

Minnesota Mining & Manufacturing, which forecast record sales and earnings for the year despite a decline in first-quarter profits, rose 1 to 78.

Telerate fell 1 1/2 to 20 3/4. The company reported a higher quarterly profit, but the increase evidently fell short of expectations on Wall Street.

Crane gained 1 1/8 to 37 1/2. The company said shareholders approved a plan to spin off the company’s CF&I; steel subsidiary.

In the bond market, prices rose in moderate trading, and the government said it sold one-year Treasury bills at the lowest yield in almost five years.

Bidding appeared brisk, with the government saying $29.7 billion in bids were tendered for the sale of $8.6 billion in short-term securities. The average yield of 7.94% was down from 8.44% last month and was the lowest for such a sale since the 7.67% of July, 1980.

Prices on 30-year Treasury bonds rose more than $10 for each $1,000 in face value and long-term yields fell to 11.06% from 11.18% late Monday.

The federal funds rate traded at 7.938%, down from 8.63% late Monday.