Dow Gains 0.22 as Stocks Retreat From Day’s Highs

A major bank’s cut in the prime rate helped propel the stock market broadly higher in active trading Wednesday, but prices ended below the session’s highs when other leading banks failed to match the move.

The Dow Jones industrials, which fell 4.20 points Tuesday, nudged up 0.22 to close at 1,273.52.

Also, a negative reaction by investors to a proposed merger involving Allied Corp. sent that component of the Dow Jones average of 30 industrials into a slide that cut gains by the stock market’s best-known indicator.

But the overall performance of the stock market was stronger than the blue-chip issues, with one key index--the New York Stock Exchange index--rising 0.39 to hit 106.87, thus inching above the previous high of 106.85 set Monday.

Wilshire Associates’ 5,000 Equity Index, the market value of 5,000 NYSE, American Stock Exchange and over-the-counter issues, was up 6.119.

Big Board volume rose to 106.87 million shares from 97.36 million on Tuesday. Robert Stovall, an analyst at Dean Witter Reynolds, said investors had been waiting for concrete evidence that either the Federal Reserve Board or banks would push interest rates lower. He said traders were disappointed when the cut in the prime rate failed to quickly spread.

Newton F. Zinder, a vice president at E. F. Hutton, said that, when the prime rate is going up, “banks can’t wait to get on board,” but when it is coming down, “they’re slower on the trigger.”

Meanwhile, Allied fell 3 7/8 to 40 after announcing plans to merge with Signal Cos. Signal was down 7/8 at 38 7/8.

In the proposed combination, Allied would offer $45 a share in cash for 22 million shares, or 20%, of Signal’s outstanding common stock. Each of the remaining shares of both Signal and Allied would be exchanged for a share of stock in a new company, to be called Allied Signal.

Among the day’s big winners, Sonat, a rumored takeover target, jumped 3 3/8 to 39 3/8.

NCR, which announced that its board had authorized the repurchase of up to 4 million shares, was up 3/8 at 28 3/4.

Western Union climbed 1 5/8 to 11 after an analyst, who had been urging the sale of the stock, changed his recommendation.

Standard & Poor’s index of 400 industrials rose 0.71 to 204.20 and S&P;’s 500-stock composite index was up 0.67 at 184.54.

At the American Stock Exchange, the market-value index was up 0.97 at 228.73. The NASDAQ composite index for the over-the-counter market closed at 288.33, up 0.61.

Large blocks of 10,000 or more shares traded on the NYSE totaled 2,158, compared to 1,959 on Tuesday.

The federal funds rate, the interest on overnight loans between banks, traded at 8%, up from 7.938% late Tuesday.

Bond prices moved lower.

In the secondary market for Treasury bonds, prices of short-term governments were unchanged, intermediate maturities fell between 3/32 point and 11/32 point and long-term issues were off as much as 1/2 point, according to the investment firm of Salomon Bros.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

In corporate trading, industrials and utilities were off point. Among tax-exempt municipal bonds, general obligations were unchanged in heavy trading and revenue bonds were off 3/4 point in moderate activity, Salomon Bros. said.

In secondary trading, yields in three-month Treasury bills fell 17 basis points to 7.43%. A basis point is one-hundredth of a percentage point. Yields on six-month bills fell 23 basis points to 7.65%, and one-year bills fell 15 basis points to 7.88%.

Yields on 30-year Treasury bonds rose to 11.10% from 11.06% late Tuesday.