Stock Prices Dive to Lowest Point in 7 Months, Caught in Grasp of Falling Dollar : Dow Plummets 47.66 in Broad Retreat as Investors Fret About the Economy

Stocks took their worst fall in nearly seven months Friday as the plummeting dollar deepened investor worries about rising interest rates and the general condition of the economy.

The Dow Jones industrial index lost 47.66 points, to close at 2,067.03, as the dollar fell to its lowest value against the Japanese yen in 10 months. The decline, on light holiday trading volume, pushed the blue chip index down 78.77 points, or 3.7%, for the week, its worst performance in three months.

“It was a wicked day, ending a wicked week,” said Edward F. Nicoski, market strategist with the Piper, Jaffray & Hopwood brokerage firm in Minneapolis.

Investors have been preoccupied in recent days by worries that short-term interest rates are about to rise. The dollar’s plunge in foreign exchange markets persuaded many investors that the Federal Reserve Board will be forced to lift rates to ward off inflation and forestall a flight of investor dollars abroad, Nicoski said.

But investors fear that raising rates could end the economy’s long expansion and tip it into a recession, he said. “The worries are circular,” he noted.

Problems Still Unsolved

The dollar’s drop reawakened other investor anxieties that had been put aside in the final weeks before George Bush’s election victory, analysts said.

“People were happy about the election’s outcome, but now it’s over and problems like the budget and trade deficits are still unsolved,” said Michael Metz, analyst with Oppenheimer & Co. in New York. With less personal popularity than President Reagan, “if anything, Bush will be less capable of solving these problems than Reagan.”

The market’s drop was deepened by thin trading on a day when many of the usual participants were off for Veterans Day. Volume on the New York Stock Exchange was 135.50 million shares, compared to Thursday’s 128.92 million shares.

Also adding downward pressure to the market was index arbitrage, a form of computer-directed program trading. These trading activities began as the price of stock index futures fell below those of the underlying stocks.

While analysts noted that the decline was worsened by the thinness of trading--selling pressure can be magnified by a relative lack of buyers in the market--Friday’s slide nonetheless provoked some unusually negative comments on the outlook.

Speculative Stocks Skid

Nicoski said the “breadth” of the market--as measured by the ratio of advancing stocks to those declining in price--has been deteriorating for months. While the market has been buoyed recently by heavy speculation about takeovers and leveraged buyouts, “now there’s more and more skepticism that the LBO thing can continue,” Nicoski said. “People are beginning to feel stuck with some of these takeover stocks.”

He said the speculative stocks that lost ground in the day’s trading included Sara Lee, down 1 to 43 7/8; General Mills, down 1 3/8 to 50 5/8, and Pepsico, down 1 to 39 1/8.

Also bearish was Guy Courtney, senior vice president with David A. Noyes & Co., a Chicago investment firm. “At the moment, there are no fundamental factors that support (buying) stocks,” he said.

Courtney says some of the heaviest trading in recent months has come when the Dow index is at the top of its trading range, as “the smart money” sells off more of its inventory of stocks.

“These specialists, the (New York Stock Exchange) members, the other insiders all start dumping when the Dow gets to the top,” he said.

Courtney forecasts that the Dow may still lose several hundred points before recovering around year-end.

In the bond market, prices of municipal bonds slipped while corporate bonds edged higher in abbreviated Veterans Day trading.

Neal Attermann, vice president and municipal research director of Kidder Peabody & Co., said prices of general obligation and revenue bonds finished 1/2 point to 3/8 point lower in quiet trading.

Corporate Bonds Rise

Jeff Goldstein, a municipal bond trader for Merrill Lynch & Co., said the decline was “in sympathy with weakness in the dollar.”

The corporate bond market rose, on the other hand. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, edged up 0.26 to 295.11.

The Treasury market was closed in observance of Veterans Day.

Among the broader stock market indexes, the Standard & Poor’s 500-stock index fell 5.77 to 267.92 for the day, and the New York Stock Exchange composite index declined 2.85 to 151.24. The NASDAQ composite index of over-the-counter stocks was off 4.64 to close at 373.76, while the American Stock Exchange market-value index fell 3.15 to 291.48.

In all, 292 Big Board issues advanced, 1,235 declined and 414 were unchanged. For the week, the S&P; 500 was down 3% and the NYSE composite fell 2.9%.

Retailer Stocks Drop

Among individual stocks, International Business Machines tumbled 3 1/8 to 116 5/8, Exxon was off 1 3/8 to 42 3/4, Boeing lost 1 1/2 to 61 5/8, International Paper eased 1 3/8 to 44 1/2, Aluminum Co. of America slid 1 1/2 to 51 5/8 and Procter & Gamble declined 2 to 80.

Time Inc. lost 4 3/4 to 100 3/4 after the media firm disclosed an interest in buying a movie studio. Among movie industry issues, MGM/UA Communications, a rumored takeover target, was up 1/8 to 13 1/8, Columbia Pictures was off 1/8 at 11 and MCA was down 1 at 46 1/2.

Capital Cities-ABC, which may face big losses from its expensive production of the miniseries “War and Remembrance,” lost 8 to 351.

Amid forecasts of a weak Christmas sales season, Sears, Roebuck declined 1 to 40 3/4, J. C. Penney plunged 2 1/8 to 51 1/8, K mart lost 5/8 to 34 3/8 and May Department Stores fell 1 1/8 to 35.

High-tech issued suffered, including Hewlett Packard, which was down 1 1/2 to 46 1/2; Compaq Computer, off 1 3/4 to 53 5/8, and Digital Equipment, which fell 2 1/2 to 89 3/4.