A slumping dollar and rising interest rates dealt the stock market a broad setback Friday, leaving the Dow Jones industrial average at its lowest level since early March.
The Dow Jones average of 30 industrials fell 45.60 points to 2,235.37, for its seventh- largest point drop on record. The average finished the week with a net loss of 40.62.
Volume on the New York Stock Exchange came to 177.96 million shares, against 173.93 million in the previous session.
The slumping dollar was also cited for pushing bond prices sharply lower Friday.
The Treasury's key 30-year bond tumbled 1 5/8 points or $16.25 per $1,000 face amount, and its yield shot up to 8.67% from 8.52% late Thursday. For the week, the 30-year Treasury price fell more than four points, or $40 for every $1,000 in face value.
Analysts said the dollar's fall to new lows against the Japanese yen prompted increased worries about the outlook for inflation and interest rates.
The Labor Department reported this morning that the consumer price index rose 0.4% in March, setting an annual pace of 5.1% after compounding.
By the time rates get high enough to shore up the dollar, some observers worry, they may start to hinder the progress of the domestic economy and hurt prospective corporate profits.
April May Show Loss
Barring a strong rally next week, April stands to go into the books as the market's first losing month of 1987. With four sessions left in the month, the Dow shows a loss of 69.32 points since the end of March.
The continued rise of interest rates took a toll on home building and savings and loan issues. Kaufman & Broad Home fell 1 7/8 to 12 1/8, U.S. Home dropped 3/4 to 5 7/8 and Great Western Financial declined 1 3/8 to 48 1/8.
Exxon dropped 2 to 86 1/2. The company posted first-quarter profits of $1.50 a share, down from $2.35 in the comparable period a year earlier.
Other losers among the blue chips included International Business Machines, down 2 1/2 at 151 3/4; RJR Nabisco, 1 3/4 to 52 3/8; International Paper, 3 3/4 to 96; Procter & Gamble, 1 3/4 to 86 3/4, and Ford Motor, down 2 3/4 at 82 3/8.
Cray Research fell 10 1/8 to 117 1/2. Some analysts said the recent trend of orders at the company was disappointing.
But Cummins Engine, which reported sharply higher first-quarter earnings, climbed 5 to 86 1/2.
Declining issues outnumbered advances by about 7-to-2 in the daily tally on the NYSE, with 358 up, 1,252 down and 360 unchanged. The exchange's composite index lost 2.86 to 159.37.
Large blocks of 10,000 or more shares traded on the NYSE totaled 3,219, compared to Thursday's 3,120.
In credit markets, corporate and municipal issues also posted losses.
Bond traders said most investors overlooked the government's consumer price index report, a closely watched inflation indicator, and focused on the dollar.
In Tokyo, the dollar dropped 1.65 yen to 139.50 yen, its lowest closing rate since modern exchange rates were set in the late 1940s and the first time it has fallen below the psychologically important 140-yen level.
The dollar also was down against most major currencies in Europe and New York.
"The bond market is totally contingent on the dollar's performance," said Elliott Platt, an economist for the investment firm Donaldson, Lufkin & Jenrette Securities.
He said the dollar's decline has encouraged fears that inflation will intensify, in part because imports will become more expensive. Inflation erodes the value of fixed-income investments such as Treasury bonds.
In addition, he said the persistence of the dollar's fall has raised speculation that the Federal Reserve Board may have to tighten credit conditions, a move that would encourage higher interest rates.
Finally, Platt said the dollar's decline may make dollar-denominated securities less attractive to foreigners, especially the Japanese who have been big buyers of Treasury issues.
Edward E. Yardeni, chief economist for the investment firm Prudential-Bache Securities, said the continuing rise in precious metals prices also intensified fears of inflation among bond investors. The metals usually offer hedges against inflation.
Bond prices were also depressed by the prospect that the Treasury Department plans to announce its May refunding plans next week. Yardeni said the Treasury is expected to announce plans to auction as much as $29 billion in new securities.
In the secondary market for Treasury bonds, prices of short-term governments fell 3/8 point, intermediate maturities fell by between 1/2 point to 7/8 point and 20-year issues were down about 1 1/2 points, according to the investment firm Salomon Bros.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
Meanwhile, yields on three-month Treasury bills shot up 33 basis points to 5.80%. A basis point is one-hundredth of a percentage point. Six-month bills rose 22 basis points to 6.02% and one-year bills were up 17 basis points at 6.40%.
The federal funds rate, the interest rate on overnight loans between banks, traded at 6.25%, down from 6.313% Thursday.
In corporate trading, industrials fell a full point and utilities were down 1 1/2 points in light trading, according to Salomon Bros.