Rally Runs Out of Gas Amid Profit Taking; Dow Closes Down 6.61

Some late afternoon selling left stock prices broadly lower Tuesday, frustrating the market’s bid to extend its latest rally.

Prices opened higher, appearing to take some encouragement from new government reports that indicated continuing low inflation and moderate economic growth. But profit taking eroded the gains as the day progressed.

The Dow Jones index of 30 industrials, which had risen nearly 40 points over the past two sessions, wound up falling 6.61 to close at 2,166.07.

The widely watched indicator of blue chip stocks had been up nearly 10 points at midday but gave ground steadily in the final hour of the session.

Declining issues outnumbered gainers by about 4 to 3 in nationwide trading of New York Stock Exchange-listed stocks, with 652 up, 845 down and 515 unchanged.

Volume on the floor of the Big Board came to 161.09 million shares, down from 162.25 million Monday.

Nationwide, consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 196.92 million shares.

As the market opened, the Dow Jones industrials moved up about 14 points during the first few minutes of trading. But the blue chip market gauge was unable to sustain the advance, and soon dropped below its post-crash closing high of 2,183.50 reached Oct. 21.

“The early rally was a carry-over from yesterday’s strength,” said Rao Chalasani, chief investment strategist for Prescott, Ball & Turben Inc. in Cleveland. “But the breadth of the market was poor.”

Worries Relieved

Before trading began, the government reported that the consumer price index rose 0.3% in November, and lowered its estimate of economic growth in the July-September period to 2.5% from 2.6%.

The reports tended to soothe worries that the Federal Reserve would move quickly to encourage even higher interest rates.

The bond market rallied, as prices of some long-term issues rose as much as $9 for every $1,000 in face value and interest rates fell.

But analysts said profit taking eroded some of the stock market’s early gains, driving prices lower.

The skeptics noted that short-term interest rates are hovering near 9% and are making yields on Treasury issues such as one-year bills attractive compared with the uncertain yields on stocks.

Chalasani noted that the Dow Jones industrials have risen about 150 points since mid-November and said he suspects that the year-end rally may “pretty much be over.”

But Lawrence R. Helfand, executive vice president at Rodman & Renshaw Inc. in Chicago, said some further gains could be in store if stocks other than the blue chip issues attract some buying interest.

Inco Most Active

Inco Ltd., the Canadian metals mining company that began trading ex-dividend recently, was the most active issue on the NYSE, rising 1 1/4 to 26 1/8. A company spokesman, Kurt Barnes, declined to speculate about reasons for the price rise or activity.

Among other active issues, J. P. Morgan lost 1/2 to 35 3/4, Tiger International slipped 1/8 to 19 3/4 and American Telephone & Telegraph fell 1/2 to 29 1/2.

First Fidelity Bancorp fell 1 3/4 to 26 1/8. The company announced last week that it expected to lose $145 million to $190 million in the current quarter, and some analysts suspect that the company’s financial problems may not be over.

Tokyo stocks closed mixed in lackluster trading. The Nikkei index of 225 selected issues, down 66.63 points on Monday, gained back 97.86 points to close at 29,567.94.

Share prices in London finished higher in a listless session Tuesday, as an optimistic start to Wall Street and better-than-expected British money supply figures helped fuel buying interest.

The Financial Times-Stock Exchange 100-stock index closed up 6.9 points or 0.4% at 1,777.4.