Dow Falls 10.31; Fears of Interest Rate Hikes Dampen Trading Pace

Stock prices finished lower Friday in light pre-holiday trading, marked by jitters over the prospect of higher inflation and hikes in interest rates.

A late downturn in interest rates, which left bonds mixed on the day, failed to stir much enthusiasm for stocks.

The Dow Jones index of 30 industrials dropped 10.31 to 1,956.44, finishing the week with a net gain of 3.85 points.

Declining issues outnumbered advances by about 5 to 4 in nationwide trading of New York Stock Exchange-listed stocks.

Volume on the NYSE came to 133.59 million shares, down from 164.26 million in the previous session. Nationwide, consolidated volume in NYSE-listed issues, including trading at regional exchanges and on the over-the-counter market, totaled 151.48 million shares.

Climate Cautious

Many traders completed their business early in the day to get a head start on the Memorial Day weekend, brokers said.

“The climate is cautious with the holiday,” said Alan Ackerman, market analyst with Gruntal & Co. “Many of the players have gone home. Some of the selling that is taking place is because people are afraid of a discount rate increase after the (stock) market closes.”

After rising sharply on Thursday, interest rates moved up again in the credit markets in early trading Friday.

Analysts cited a spreading belief that the Federal Reserve was tightening credit further in response to evidence of continuing strength in the economy.

On Thursday, the Commerce Department made a sharp upward revision in its figure for economic growth during the first quarter of the year.

As the session passed, bonds attracted some buyers. “The bond market was comforted by the notion that policy-makers are attempting to snuff out inflation fears,” said analysts at Salomon Bros.

Texaco lost 3/8 to 49 5/8 in active trading. The company’s directors rejected a $60-a-share takeover proposal by financier Carl C. Icahn.

Utility Stocks Active

Japanese stocks ran into selling following a down day in the Tokyo market. Matsushita fell 8 1/2 to 200; Honda Motor lost 2 3/8 to 133 7/8, and Kyocera fell 3 7/8 to 83.

Duquesne Light, unchanged at 14 1/2, and Texas Utilities, down 1/8 at 25 5/8, were the day’s most active NYSE issues, in trading dominated by strategies focused on the companies’ forthcoming dividends.

Those two stocks, in fact, accounted for nearly one-third of the day’s overall Big Board volume.

Huffy fell 3 1/2 to 21 after a delayed opening apparently prompted by an adverse report from a brokerage house. Later in the day, Huffy said it expected lower second-quarter earnings, citing slower retail bicycle sales.

Maxus Energy jumped 1 1/2 to 8 1/2 on top of a 5/8-point gain Thursday. The company declined to comment on the activity, which was evidently stirred by takeover rumors.

Shares of textile-maker Burlington Northern Inc. rose 6 to 66 3/4 on resurfacing rumors about a possible company restructuring, analysts said.

Tenneco fell 5/8 to 45 on profit taking after being up sharply earlier in the week. The company said it plans to sell its oil and gas operations, which are expected to fetch $5 billion to $7 billion.

General Motors Corp. fell 1/8 to 72 3/4. The company said it is recalling 39,000 of its 1987 cars due to safety-related defects.

The Wilshire index of 5,000 equities closed at 2,532.943, down 8.403.

The NYSE’s composite index of all its listed common stocks dropped 0.57 to 143.66.

Standard & Poor’s industrial index fell 1.76 to 292.55, and S&P;’s 500-stock composite index was down 1.21 at 253.42.

The NASDAQ composite index for the over-the-counter market slipped 0.63 to 366.66. At the American Stock Exchange, the market-value index closed at 290.50, off 1.56.

In foreign markets, stock prices closed lower in Tokyo in active trading amid widespread investor worries that the U.S. Federal Reserve Board will raise the discount rate.

The Nikkei 225-share index lost 137.75 to 27,290.49. It shed 15.41 points Thursday.

Prices on London’s Stock Exchange settled slightly lower as the market largely ignored worse-than-expected British trade figures and chose instead to focus on the long holiday weekend.

The Financial Times-100-share index closed 1.6 lower at 1,783.7.