Dow Plunges 39--Suffers Biggest Tumble in History : Drop Tied to Interest Rate Rise

The Dow Jones industrial average suffered its biggest one-day nose dive ever today as the stock market tumbled from the record highs it reached on Tuesday.

The Dow Jones average of 30 industrials closed down 39.10 at 1,526.61.

New York Stock Exchange volume was about 180.33 million shares compared with 152.95 million shares Tuesday.

In percentage terms the average’s slide came nowhere near the proportions of the drop in 1929 that began at much lower levels and came to be known as the Great Crash.

The previous largest single day drop occurred Sept. 28, 1929, when the blue-chip indicator lost 38.33. That was a 12.8% drop compared with today’s 2.5% drop.

Analysts said the sell-off was prompted in part by a sudden rise in interest rates in the credit markets. Prices of long-term government bonds, which move in the opposite direction from interest rates, fell about $20 for every $1,000 in face value.

The upsurge in interest rates was attributed to signs of economic strength that showed up in today’s government report on the employment situation, and to disappointment that the Federal Reserve has not lowered its discount rate.

Once bond and stock prices began to slide, brokers said, it touched off a rush of selling by investors seeking to cash in, and thereby protect, their gains arising from the powerful rally staged by both markets in late 1985.

Brokers didn’t claim to be pleased by the stock market’s nose dive, but they said the general mood was by no means panicky. They argued that the market was due for something like this after its heady rise last year.

“It’s painful while it’s happening, but long-term it’s healthy,” said William LeFevre at Purcell, Graham & Co.