Dow Dives 140, 3rd Worst Loss : Wall Street Fearful of New Rules

Wall Street stocks staged their third biggest retreat in history today with the Dow Jones industrial average diving an estimated 140.59 points, hammered by investors’ worries about the economy and the possibility of stricter regulation of the financial markets.

The market’s precipitous drop snapped a four-day advance and pushed the Dow Jones average of 30 industrials below the 2,000 point level, to 1,911.30.

Declining issues led gainers by 10-to-1 on a volume of 197.30 million shares.

Because of a processing backlog related to today’s heavy trading, officials said, the closing averages are preliminary and it will be late in the day before the figures can be made final.

Steady Fall in Prices

Stocks fell steadily through the early afternoon after a briefly higher opening. A dollar recovery from early week historic lows had prompted a 113-point gain in the Dow average in the first four sessions this week.

Distressing news on the economic front sent the dollar and bonds lower, and investors took the opportunity to take profits, analysts said.

Analysts cited negative sentiment raised by the report of a presidential commission appointed to study the crash. The report called for major changes in the securities markets, including limits on stock price movements, that many market watchers said could chase business to foreign exchanges.

Rumors also circulated that the November U.S. trade deficit, due out next week, will widen to as much as $20 billion, and a White House study was reported to say the 1989 budget deficit could exceed limits set by the Gramm-Rudman deficit reduction bill. (Story on Page 2.)

Trade Report Awaited

Many investors are anticipating a negative report next Friday on the U.S. trade deficit for December--with analysts projecting a shortfall of $15 billion to $16 billion, and some estimating as high as $20 billion. That would put added pressure on the shaky dollar, which struggled to its feet this week with the help of intervention by major central banks and helped boost the stock market in turn.

Also dampening share prices was a news report published today outlining economic forecasts by experts outside the government. The private forecasts predicted that the federal budget deficit could jump to $167 billion in the next fiscal year, $31 billion over the ceiling set by law.

Analysts said the government’s report early today that civilian unemployment dropped to 5.8% in December, its lowest rate since July, 1979, was viewed as an indication of a strong economy. That fueled concern, they said, that the Federal Reserve could tighten credit and nudge interest rates higher to ward off inflationary pressures.

“We were skunked by good news,” said Larry Wachtel, an analyst for Prudential-Bache Securities Inc. “It’s too much of a good thing.”