Dow Closes at 2,561.38, Down 38.11 : Discount Rate Hike Factor in ‘87’s Biggest Weekly Decline
The stock market slid sharply in slow, pre-holiday trading, hurt by persistent selling in the wake of the Federal Reserve’s move to boost its key discount rate.
The Dow Jones average of 30 industrials fell 38.11 to 2,561.38, bringing its loss for the week to 77.97 points.
That surpassed the previous week’s 70.15 decline as the biggest weekly point drop of the year.
Volume on the New York Stock Exchange slowed to 129.07 million shares from 165.20 million Thursday, with many market participants getting a head start on the long Labor Day weekend.
As the market opened, the Federal Reserve raised its discount rate--its lending fee to financial institutions--to 6% from 5.5%, where it had stood since April, 1984.
Numerous banks across the country quickly followed with increases in their prime lending rates to 8.75% from 8.25%.
Rates in Short-Term Rates
These moves came largely as a response to a recent jump in open-market rates. Some observers saw the discount rate action as a potential plus for the dollar in foreign exchange.
But many investors still seemed to be unsettled by the latest sequence of events, and leery of carrying large stock positions into the weekend.
In addition, rates jumped Friday in the short-term money market, which had been relatively steady while long-term bond rates were moving up in recent days. Yields on three-month to one-year Treasury bills increased by 15 to 30 basis points, or hundredths of a percentage point.
Bank stocks were mostly lower. Citicorp dropped 1/2 to 60; Chase Manhattan fell to 39 5/8; Chemical New York slipped 5/8 to 38 7/8 and J. P. Morgan dropped 1 1/8 to 46 3/8.
Some individual issues bucked the down trend on takeover news or speculation.
G. Heileman Brewing led the active list, up 8 at 42 1/8. Bond Corp. Holdings of Australia made a $38-a-share bid for the company.
Rexham gained 4 5/8 to 49 5/8. On Thursday, a group led by investor Asher B. Edelman said it had a 6.9% interest in the company and might seek to gain control of it.
Elsewhere, Atlas Corp. jumped 7 1/2 to 39 1/2. The company said it expects to earn about $2 a share in the current fiscal year, following a restructuring program to concentrate on its gold-producing business.
Golden Nugget, which plans to buy back as many as 10 million of its shares for $13.25 apiece, rose to 13 in active trading.
Declining issues outnumbered advances by more than 2-to-1 on the NYSE, with 501 up, 1,075 down and 407 unchanged. The exchange’s composite index lost 1.76 to 177.58.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 153.89 million shares.
Standard & Poor’s index of 400 industrials fell 4.46 to 370.14, and S&P;’s 500-stock composite index was down 3.95 at 312.92.
The NASDAQ composite index for the over-the-counter market dropped 1.88 to 446.48. At the American Stock Exchange, the market-value index closed at 354.42, down 1.88.
The Wilshire index of 5,000 equities closed at 3,131.590, down 29.456.
The Treasury’s key 30-year bond, which had lost more than $31 per $1,000 in face amount since Tuesday, dropped another $2.50 per $1,000 in face amount. Its yield rose from 9.44% late Thursday to 9.47%, the highest level since early 1986.
Municipal bonds were particularly hurt by the Fed’s tightening move, with some falling $15 per $1,000 in face amount. Analysts attributed the drop to municipal bond mutual funds that were forced to sell bonds on behalf of large numbers of investors who wanted to redeem them and get out of the market.
Utilities Down
In the secondary market for Treasury bonds, prices of short-term governments fell point, intermediate maturities fell about 5/16 point and long-term issues fell point, the Salomon Bros. Inc. investment firm said.
In corporate trading, industrials and utilities fell point in light dealings.
Among tax-exempt municipal bonds, general obligations fell 1/2 point and revenue bonds fell 1 1/2 points. Trading was light to moderate.
Yields on three-month Treasury bills jumped 20 basis points to 6.38%. Six-month bills rose 17 basis points to 6.54%; one-year bills rose 21 basis points to 7.11%.
The federal funds rate, the interest on overnight loans between banks, traded at 6.75%, unchanged from Thursday.
