Late Blue-Chip Rally Pushes Dow Up 11.36 : Indicator Rebounds as Interest Rate Fears Calm

Stock prices were mixed Wednesday as traders reacted first with anxiety and then calm to news of an increase in the prime lending rate.

The Dow Jones index of 30 industrials, down about 26 points in early trading, ended the day up 11.36 points at 2,316.05.

Declining issues outpaced gainers by nine to five, with 1,050 down, 579 up and 360 unchanged on the New York Stock Exchange.

Volume on the Big Board totaled 182.63 million shares, against 171.76 million the previous session.

Citibank and Chase Manhattan Bank raised their prime rates to 7.75% from 7.5% after the market closed Tuesday, and other major banks followed suit on Wednesday.

The increase came as an unpleasant surprise, and the market responded with an immediate selling spurt that sent the Dow index down sharply in the first hour of trading.

The average recovered ground by mid-morning, and then hovered around 10 points lower much of the day before rallying near the close.

“After an emotional knee-jerk response, a more sober response set in” as investors “recognize the prime is not that important after all,” said Hugh Johnson, an analyst with First Albany Corp. in Albany, N.Y.

The prime, used as a base to set interest rates on a variety of corporate and consumer credit, had not been increased since June 25, 1984, when banks raised the prime to 13% from 12.5%.

The most active issue on the NYSE was Pacific Gas & Electric, down 2 to 22 1/8. Utilities, which are big issuers of debt securities, are particularly sensitive to changes in interest rates.

Oil stocks were among the issues that did well. Atlantic Richfield rose 5 to 85, Exxon was up 2 3/4 to 88 1/2, Chevron jumped 1 3/4 to 57 7/8 and Amoco picked up 2 to close at 81 3/4.

Among other big winners on the day was Delta Air Lines, which was allowed by the U.S. Supreme Court to merge with Western Airlines. Delta stock rose 2 1/8 to 57. Grumman, which won a $28-million contract from McDonnell Douglas, rose 3 3/8 to 30 1/2.

On the down side, J. C. Penney dropped 1 3/8 to 97 5/8, Honda lost 1 to close at 87 3/4 and Weyerhauser slipped 1 to 55 3/4.

Large blocks of 10,000 or more shares traded on the NYSE totaled 3,737, compared to 3,322.

In the credit markets, government bond prices moved higher.

Analysts described Wednesday’s activity as a technical rebound, after the market had been shocked by Tuesday’s first word of the prime rate increases.

By late Wednesday the bellwether 30-year Treasury bond was up 5/8 point, or $6.25 for each $1,000 of face value, after having lost about $10 per $1,000 in face value on Tuesday. The yield stood at 7.87%, down from 7.92%.