Dow Up 3 in Late Blue-Chip Rally

The stock market bounced back from a round of morning selling to finish mixed Monday, thanks to some buying of blue-chip issues near the close.

The late upswing came despite general uneasiness about the outlook for interest rates.

The Dow Jones average of 30 industrials, down about 5 points in the early going, finished with a 3.47 gain at 1,359.99.

Volume on the New York Stock Exchange slowed to 97.88 million shares from 101.81 million Friday.

Rates rose in the bond market as traders looked ahead to a backlog of new government securities that has built up while Congress struggles to agree on legislation raising the Treasury’s debt ceiling.

There was concern on Wall Street that U.S. rates might also have to rise to stay competitive with rates in Japan, which have taken a jump in recent days.

Higher rates would stand as an obstacle to revived growth in the domestic economy. At the same time, they would make interest-bearing investments more attractive in comparison to stocks.

News of stepped-up progress in the House Ways and Means Committee over the weekend toward tax reform legislation appeared to have little impact on the market.

Texas Instruments dropped 2 1/8 to 90 1/2. Late Friday, the company reported an $82.8-million loss for the third quarter and said it would lay off 2,200 workers and close some plants as a result of the continuing slump in the semiconductor business.

UAL, which reported that its third-quarter earnings declined to 46 cents a share from $1.75 in the comparable period last year, slumped 1 to 46. Among other leading airline issuers, Delta Air Lines slipped 5/8 to 37 3/8; AMR was down 1/2 at 38 3/4 and Eastern lost to 6 7/8.

Wieboldt Stores tumbled 1 1/2 to 10 3/4. The company said it had dropped its plans to be acquired by an investor group that included several executives in the retailing industry.

Texas Oil & Gas fell 1 to 18 and U.S. Steel was up 1/8 at 28 1/8. U.S. Steel said Friday that it was engaged in talks toward a possible acquisition of Texas Oil & Gas.

Brooklyn Union Gas rose 1 1/8 to 41 1/8 on word of the company’s plans for a 2-for-1 stock split and a dividend increase.

In the credit markets, the Treasury’s announcement that it will sell $17.8 billion of notes and bonds at auctions today, Wednesday and Thursday did not force bond prices down as much as it might have had the market not been braced for it.

“We all have been waiting for this announcement. . . . We all knew that the Treasury needed money,” said Maria Ramirez, an analyst at Drexel Burnham Lambert in New York.

The Treasury has been forced to postpone or reduce its borrowing because Congress has not raised the federal debt limit. Over the past several weeks, Reagan Administration officials have resorted to unusual bookkeeping methods to allow the Treasury to borrow enough money to keep the government running without piercing the debt ceiling.

Even though dealers have been prepared for a large government financing package, nervousness abounds as analysts question whether the market can swallow the new supply of government debt without getting a case of indigestion.

Of particular concern is the possibility that the Japanese, which have come to be major buyers of U.S. securities, may shy away from the Treasury auctions.

Last week, the Tokyo government announced that it is tightening policies, which will nudge up yen-denominated interest rates. That will raise yields on Japanese securities and make them more attractive to investors, possibly at the expense of U.S. issues.

In the secondary market for Treasury securities, prices of short-term governments fell from 2/32 to 5/32 point, intermediate maturities fell 11/32 point and long-term issues were down between 19/32 and 25/32 point.

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.30 to 106.05. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, dropped 3.82 to 1,112.42.

In corporate trading, industrials and utilities fell point in light trading.

Among tax-exempt municipal bonds, general obligations and revenue bonds fell point in light trading.

Yields on three-month Treasury bills were down 2 basis points to 7.21%. Six-month bills fell 2 basis points to 7.38%, while one-year bills edged up 1 basis point to 7.50%.

Yields on 30-year Treasury bonds rose to 10.52% from 10.46% late Friday.

The federal funds rate--the interest on overnight loans between banks--traded at 7.688%, compared to 7.875% late Friday.