Stock and bond prices tumbled Tuesday, pressured by nagging concerns about inflation and the possibility of higher interest rates.
The Dow Jones average of 30 industrials slid 37.38 to close at 2,221.28. Declining issues outpaced advancing issues by a 13-3 margin on the New York Stock Exchange, with 1,319 stocks falling, 337 rising and 344 unchanged.
Big Board volume totaled 175.35 million shares, against 174.16 million in the previous session.
The Treasury's closely watched 30-year bond ended the session down 1 7/8 points, or $18.75 per $1,000 face amount, while its yield soared to 9.07% from 8.88 Monday. It was the first time since February, 1986, that the bond's yield topped 9%, according to Raymond W. Stone, chief financial economist for Merrill Lynch Capital Markets.
Stock market participants were waiting for signs to emerge later this week from Tuesday's meeting of Federal Reserve policy-makers. Speculation has been growing in recent days that the Fed could raise its discount rate in a bid to stop a trend toward rising inflation.
The discount rate, now at 5.5%, is the interest the Fed charges on loans to private banks. If banks are forced to pay a higher rate to the central bank, they can be expected to pass the increased costs--also in the form of higher interest rates--along to their customers.
"There's a lot of nervousness about interest rates and inflation," said Richard Schmidt, an analyst for Advest Inc. in Hartford, Conn. "(The Fed is) walking a tightrope between the dollar, the international economy and our own."
Lack of Momentum
Some analysts said the market was also weighed down by its own lack of momentum Tuesday, with investors discouraged by the market's inability to rally following Monday's broad loss.
"It's starting to wear on the patience of the traders and the investors," said Lew Smith, an analyst for Bear, Stearns & Co. "There's a wearing down of the nerves here."
Analysts said stock prices were unaffected by Tuesday's government report that housing construction fell 2.9% in April.
The most actively traded NYSE issue was Harcourt Brace Jovanovich, which rose 1 3/8 to 48. The stock was still buoyed by British Printing & Communication's announcement Monday that it proposed to buy Harcourt for $44 a share.
Among other advancers, American Express gained 3/8 to close at 30 5/8 and Upjohn rose 1/2 to 44.
Among declining issues, IBM fell 4 to 156 3/4, Hewlett-Packard was down 1 1/2 at 62 3/8, Navistar eased 1/8 to 7 5/8, Ford Motor was down 1 1/2 at 89 and General Electric dropped 1 3/8 to 99 1/2.
The NYSE's composite index of all its listed common stocks fell 3.52 to 157.93.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 204.58 million shares.
Large blocks of 10,000 or more shares traded on the NYSE totaled 3,514 compared to 3,226 Tuesday.
In the credit markets, the federal funds rate, the interest on overnight loans between banks, traded at 6.5%, down from 6.813%.
In the secondary market for Treasury bonds, prices of short-term governments ranged from 3/16 point to 9/32 point lower, intermediate maturities were down 1/2 point to a point and 20-year issues were off 2 1/8 points.
In corporate bond trading, industrials fell 1 1/2 points and utilities were off 3/4 point in quiet trading, according to Salomon Bros.
Among tax-exempt municipal bonds, general obligations fell 3/4 point and revenue bonds dropped 1 1/2 point, Salomon Bros. said.
However, yields on three-month Treasury bills were down 48 basis points to 5.53%, according to Telerate. Six-month bills fell 14 basis points to 6.18% and one-year bills were up 1 basis point at 6.73%.
"The market got creamed, and that's about the nicest thing I can say," said Jay Goldinger, an investment banker with Beverly Hills-based Cantor, Fitzgerald & Co.