Dow Plunges 36.97 in Worst Loss of ‘89; Rise in Wholesale Prices Cited

The stock market took its sharpest drop of the year today, faced with new worries about inflation and rising interest rates.

The Dow Jones index of 30 industrials fell 36.97 to 2,286.07, extending its loss for the week to 45.18 points.

Declining issues outnumbered advances by more than 4 to 1 on the New York Stock Exchange, with 300 up, 1,221 down and 446 unchanged.

Big Board volume totaled 173.56 million shares, down from 224.22 million in the previous session. The NYSE’s composite index dropped 2.12 to 164.01.

The Labor Department reported that producer prices of finished goods jumped 1% in January, the sharpest rise since they posted a similar increase in October, 1985.

The figure came in well above advance estimates on Wall Street, and touched off new concerns on Wall Street about the inflation outlook.

Speculation quickly intensified about whether and when the Federal Reserve might tighten credit further in its campaign against inflation.

Numerous large banks across the country raised their prime lending rates to 11% from 10.5%.

Analysts also cited some disappointment among traders over President Bush’s budget message Thursday night, saying it didn’t live up to hopes that it would contain forceful new ideas about how to straighten out the government’s budget.

Bond prices continued their slide in early trading today in reaction to the government report that wholesale prices shot up last month.

The Treasury’s benchmark 30-year bond, issued on Thursday, yielded 9.04%. The previous benchmark bond fell 3/4 point, or $7.50 per $1,000 face amount, while its yield, which moves in the opposite direction from its price, rose to 9.16% from 8.89% late Thursday.

The key bond had already plunged 1 5/8 points on Thursday, the biggest one-day drop since November, in response to a slumping dollar and a weak reception for the government’s bond auction.

In the secondary market for Treasury bonds, prices of short-term governments fell 5/32 to 1/8 point, intermediate maturities fell 11/32 point and long-term issues were down 3/4 point, according to Telerate Inc., a financial information service.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The Shearson Lehman Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 4.39 to 1,127.23.

In corporate trading, industrials were down. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, fell 0.41 to 298.79.

The federal funds rate, the interest on overnight loans between banks, was quoted at 9 3/16%, up from 9 1/8% late Thursday.