Dow Drops 5.83 After Morning Rally Fizzles

The stock market abruptly changed direction at mid-session Tuesday and wound up posting a decline for the second consecutive day.

Utility issues led the decline in heavy trading. Some computer issues, which had led the market higher early in the session, gave up most of those gains by the end.

The Dow Jones average of 30 industrials, which slipped 1.90 on Monday, fell another 5.83 to 1,351.81. The average had been up nearly 10 points in the early afternoon. In the past two days, it has backed away from its record close of 1,359.54 set last Friday.

Big Board volume surged to 143.63 million shares from 93.54 million shares Monday.

Analysts have said that the market’s drive to record heights has stemmed from optimism that the economy will rebound in the second half of the year after a sluggish first half. That could be a positive development for corporate earnings.

Outlook Still Unclear

But other analysts said that the economic outlook remains unclear and that the market was due for a pause as traders take profits on the recent price run-up.

Michael Metz, who follows the stock market for the investment firm Oppenheimer & Co., said “there is still a lot of nervousness” about the possibility of an economic revival.

“This market has been dominated more by traders than investors with any real convictions about the economy,” he said.

In economic news Tuesday, the government reported a strong 1.8% rise in durable goods orders in June.

Metz said that report “tended to buttress the view that the worst of the economic downturn has been seen and that the economy may have bottomed out.”

But he said others feel the economy will remain sluggish.

Leading the list of most actively traded issues on the NYSE was Phillips Petroleum, which rose 1/8 to 12 3/8. A 500,000-share block was traded at 12.

International Business Machines finished down 1/2 at 129 3/8 after trading up by more than a point for much of the day.

Among other technology issues, Burroughs was up 5/8 at 63, Sperry rose 1 3/8 to 51 7/8 and Zenith rose 5/8 to 19 3/8.

American Telephone & Telegraph was off 7/8 at 21 5/8, while others in the utility group posted declines of well over two points.

Union Carbide Up

Among them, Bell Atlantic fell 3 5/8 to 89 3/8, Ameritech slid 2 3/4 to 88 1/2, Nynex was off 3 at 84, Pacific Telesis was down 2 1/2 at 75 1/8, Southwestern Bell plunged 3 1/8 to 80 3/4 and US West was off 3 at 77 1/8.

Also on the active list, Union Carbide rose 2 1/2 to 52, Reynolds Industries fell 1 3/8 to 27 1/2 and American Express was off at 46 1/8.

General Motors, which reported that its second-quarter profit fell 28%, was off 1 1/2 to 68.

Bond prices were little changed Tuesday as a key short-term interest rate fell.

The federal funds rate, the interest on overnight loans between banks, traded at 7.675%, compared to 8% late Monday.

In the secondary market for Treasury bonds, prices of short-term governments fell 2/32 point, while intermediate maturities and long-term issues were each up 2/32 point.