Dow Drops 12.36; Confusion About Economy Blamed

Stock prices declined Friday in sporadic selling attributed to confusion about the outlook for interest rates.

The Dow Jones index of 30 industrials dropped 12.36 to 2,322.30, reducing its gain for the week to 41.90 points.

Volume on the New York Stock Exchange slowed to 161.88 million shares from 215.20 million in the previous session.

On Thursday, the Treasury auctioned $9.28 billion in 30-year bonds at an average yield of 8.76%.

That showing got mixed reviews on Wall Street. However, analysts said traders seemed to be relieved that the offering was completed without a drastic rise in interest rates.

The refunding was scarcely completed when the credit markets faced a new test from the Labor Department’s report Friday morning on the employment situation.

The department said non-farm payroll employment increased by a larger-than-expected 316,000 last month, and the civilian unemployment rate fell to 6.3% from 6.6%.

Tops Most-Active List

While that was favorable news for the domestic economy, analysts said it might also be interpreted as a negative for the interest rate outlook. A strong economy at least theoretically leaves the Federal Reserve with more room to raise its discount rate in its efforts to shore up the dollar in foreign exchange.

Texaco was the volume leader, up 1 7/8 at 35 1/2 on volume of more than 7.2 million shares amid reports that Robert Holmes a Court, a prominent Australian investor, was accumulating the stock.

Procter & Gamble climbed 4 3/4 to 94 5/8 in active trading. On Thursday, the company said the Food and Drug Administration had agreed to review a P&G; food additive that contains no calories or cholesterol.

Losers among the blue chips included International Business Machines, down 1 1/8 at 163 3/4; International Paper, off 2 1/8 to 91 3/4; General Electric, down 1 5/8 to 103 5/8, and General Motors, 1/2 lower at 89 3/4.

Bond prices rose, as the market drew strength from a higher dollar and from traders’ relief that the government’s quarterly refunding auction was over.

The Treasury’s closely watched 30-year bond rose 27/32 point, or nearly $7.50 per $1,000 in face value. Its yield fell to 8.60% from 8.68% on Thursday.

Treasury Issues Rise

In the secondary market for Treasury issues, prices of short-term government bonds ranged 1/8 point to 9/32 point higher, intermediate maturities ranged point to 3/4 point higher and 20-year issues were up 27/32 point, according to figures provided by the financial information service Telerate Inc.

Yields on three-month Treasury bills fell 1 basis point to 5.52%, according to Telerate. Six-month bills jumped 4 basis points to 5.83% and one-year bills slipped 2 basis points to 6.34%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, was quoted at 6 3/4%, down from 6.813% on Thursday.

In corporate trading, industrial bonds and utilities rose 1 point in light activity, the investment firm Salomon Bros. said.

Among tax-exempt bonds, general obligation issues rose point in moderate trading and revenue bonds were up point in light trading, according to Salomon Bros.