Dollar’s Decline Worries Traders; Dow Skids 44.60 : Stock, Bond Prices Fall on Fears That Higher Inflation Will Prompt Move by Fed

Profit taking and fears about the dollar and a possible rise in interest rates combined Tuesday to send prices sharply lower on Wall Street.

The Dow Jones average of 30 industrials fell 44.60 to close at 2,360.94. The drop, the fifth-largest in the history of the average, came one day after the closely watched market barometer passed 2,400 for the first time.

Declining issues outpaced advancing issues by a margin of 11 to 5, with 1,118 issues falling, 505 rising and 354 unchanged on the New York Stock Exchange.

NYSE volume totaled 186.41 million shares, up from 173.72 million Tuesday.

The Dow industrial average had zigzagged during the day before turning lower for good and tumbling more than 28 points in the last hour of trading.

Analysts chalked up the losses to profit taking and a response to weakness in the dollar and the Treasury bond market.

‘The Jitters Again’

“Sooner or later, when you have the kind of markets we’ve been having, it’s just common sense that you get a correction,” said Hugh Johnson, a senior vice president and analyst with First Albany Corp. in Albany, N.Y.

The Dow Jones average had picked up more than 85 points in the previous two sessions as the stock market continued the rally that began Jan. 2.

A. C. Moore, an analyst with Argus Research Corp., said investors were nervous in advance of the meeting in Washington today between Reagan Administration officials and representatives of major industrial nations, including Japan, Britain, West Germany and France.

The dollar is expected to be among the topics discussed at that meeting.

The finance ministers, meeting in conjunction with a semiannual session of the International Monetary Fund in Washington, were expected to review their Feb. 22 agreement to stabilize the dollar.

Since the agreement, the dollar has tumbled to 40-year lows against the Japanese yen, raising speculation that higher inflation and higher interest rates would result.

The U.S. currency fell to another low against the Japanese yen Tuesday.

Federal Reserve Chairman Paul A. Volcker on Tuesday repeated his contention that relying on a weaker dollar--which makes imports relatively less competitive--to ease the U.S. trade deficit posed “substantial risks” to the economy, including high inflation.

Inflation fears caused steep sell-offs last week in the bond and stock markets as the dollar reached new lows against the yen.

Bond Prices Lower

“It gave us the jitters again and reminded us we may have further problems with the dollar,” First Albany’s Johnson said. “The market is afraid the (Federal Reserve Board) will lean toward restraint and nudge interest rates higher” in response to the dollar’s drop.

Bond prices were sharply lower, and stocks also were “sinking under the weight of the bond market,” Johnson said.

The bellwether 30-year Treasury issue was off about 1.188 point, or more than $10 per $1,000 in face amount. Its yield jumped to 7.97% from 7.84% late Monday.

Topping the NYSE’s most-active list was Texaco, which rose 3/8 to 34. Texaco fell sharply in Monday’s trading, after the U.S. Supreme Court said the oil company was still subject to a Texas legal provision requiring it to post a $10.3-billion bond while appealing the massive judgment it lost to Pennzoil more than a year ago.

Big losers in Tuesday’s trading included IBM, which fell 2 7/8 to 146 1/2; General Electric, which tumbled 3 5/8 to 108 1/8; Upjohn, which slipped 3 7/8 to 127 5/8, and Teledyne, falling 4 to 331 1/2.

Among the gainers was Caesars World, which picked up to close at 30 7/8. Investor Martin T. Sosnoff said he is willing to increase his $28-a-share offer to buy Caesars World, which earlier announced a recapitalization plan to thwart Sosnoff’s unsolicited takeover bid.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 222.48 million shares.

The NYSE’s composite index fell 2.61 to 168.35.

Standard & Poor’s index of 400 industrials fell 5.79 to 343.70, and S&P;’s 500-stock composite index was down 5.26 to 296.69.

The American Stock Exchange market-value index fell 0.59 to 341.64; the NASDAQ composite index closed at 434.01, down 3.77.

In the bond market, prices fell, with government securities reaching seven-month lows on speculation over whether the dollar would fall further. Uncertainty over its future strength weighed on the bond market.

Also dampening bond prices were further rises in precious metals prices and oil futures, judged by many as a harbinger of higher inflation.

In the secondary market for Treasury bonds, prices of short-term governments slipped in the range of 1/8 point to 3/16 point, intermediate maturities fell in the range of 3/8 point to 13/16 point and 20-year issues fell about 1 1/8 point, according to Salomon Bros.

The movement of a point equals a change of $10 in the price of a $1,000 bond.

In corporate trading, industrials were down 5/8 point in moderate trading and utilities were down 1 point in active dealings, Salomon Bros. said. Among tax-exempt municipal bonds, general obligations fell 3/8 in light trading and revenue bonds were off 1 3/8 point in active trading.

Yields on three-month Treasury bills rose 7 basis points to 5.54%, while yields on six-month bills were unchanged at 5.68%. One-year bills were up 9 basis points at 5.82%.

A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest charged on overnight loans between banks, traded at 6.25%, up from 6.188% Monday.