Dow Dives 22.38; Late Selling Wave Snuffs Rally

A sudden selling panic in the last hour of trading on Thursday drove stock prices sharply lower, erasing an earlier 30-point gain in the Dow index and crushing Wall Street’s hopes of setting a new post-crash high.

Brokers said the market lost its footing after former Federal Reserve Board Chairman Paul A. Volcker forecast higher interest rates in the near future.

Analysts said the market seemed to hit a stone wall of resistance as it made a bid to climb to new highs since last October’s crash.

The Dow Jones index of 30 industrials, up about 27 points at its mid-session high, closed with a 22.38-point loss at 2,017.57.

Declining issues outnumbered advances by more than 8 to 7 on the New York Stock Exchange, with 698 up, 806 down and 475 unchanged.

Big Board volume totaled 213.49 million shares, against 212.73 million in the previous session. The NYSE’s composite index lost 1.24 to 147.30.

Jack Baker, the head of equity trading at Shearson Lehman Hutton, said Wall Street investors “heard things from Volcker that they clearly did not want to hear.”

Volcker, speaking in San Antonio, also said the budget deficit should be trimmed by raising taxes.

“Volcker is in many ways this nation’s fiscal conscience,” said analyst William Lefevre of Advest Inc. He said that when Volcker’s comments were reported about 75 minutes before the stock market’s close, U.S. bond prices fell about one point. That put Standard & Poor’s futures contract at a discount to the cash market and triggered futures-related sell programs.

Kodak Advances

“If Volcker says that interest rates are going up and the only way to resolve the budget deficit is to raise taxes--that goes against what many investors feel is their divine right,” Lefevre said.

The late drop meant that the Dow Jones industrial average failed to close above the 2,051.89 mark it reached on Jan. 7, which stands as its closing high since the crash.

Eastman Kodak led the NYSE active list, up 5/8 at 42. The company said it expects its 1988 earnings to be a good deal higher than recently published estimates by Wall Street analysts.

Among other heavily traded blue chips, International Business Machines fell 1 5/8 to 114 1/2, General Electric dipped 7/8 to 43, Ford Motor eased 7/8 to 44, American Express lost 5/8 to 25 3/8 and American Telephone & Telegraph sliped 1/8 to 29.

Energy issues were mostly lower, pressured by falling oil prices. Amoco dropped 1 7/8 to 72 3/4, Mobil declined 1 1/8 to 42 3/4, Exxon dipped 5/8 to 41 5/8, Chevron retreated 5/8 to 43 1/8 and Atlantic Richfield fell 1 5/8 to 76 1/8.

On the other side of the coin, airline issues, which are sensitive to the fuel-price outlook, showed some gains. AMR rose 3/8 to 39, NWA gained to 41 3/8 and Allegis added 3/4 to 75.

Irving Bank jumped 3 to 53 1/2. The Bank of New York took a step toward carrying out its bid to acquire Irving when it received the approval of the New York State Banking Board.

Indicators Mixed

Compaq Computer rose 1 1/8 to 48. The stock was added to Standard & Poor’s 500-stock composite index, prompting buying by so-called index funds set up to duplicate the performance of the 500.

The Wilshire index of 5,000 equities closed at 2,583.903, down 17.671.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 246.16 million shares.

Standard & Poor’s index of 400 industrials fell 3.45 to 301.61, and S&P;’s 500-stock composite index was down 2.85 at 261.58.

The NASDAQ composite index for the over-the-counter market rose 0.48 to 363.62. At the American Stock Exchange, the market-value index closed at 283.29, up 0.09.

In foreign trading, share prices on the London Stock Exchange closed sharply higher as trading volume picked up to its best level in several weeks.

At the close, the Financial Times 100-share index was up 22.3 points at 1782.4, its best level for the day.

In Tokyo, stock prices rose for the 11th consecutive session. The Nikkei 225-share index rose 132.01 points to 25,100.66, closing above 25,000 points for the first time since the October stock crash.