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Concern Over Interest, Credit Depresses Dow

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From Associated Press

An early advance faded in the stock market today, leaving prices mixed as investors continued to keep an eye on the outlook for interest rates and inflation.

The Dow Jones average of 30 industrials, up more than 15 points in the early going, closed with a 1.25 loss at 2,281.25.

Advancing issues outnumbered declines by about 7 to 6 on the New York Stock Exchange, with 771 up, 663 down and 505 unchanged.

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Big Board volume totaled 149.56 million shares, against 143.52 million in the previous session.

The NYSE’s composite index slipped .21 to 163.94.

Rates rose in the credit markets today after the Commerce Department reported that retail sales rose 0.6% in January, slightly higher than expectations.

Analysts said some traders took the strong growth in retail sales as a fresh bit of evidence in the case for tighter credit.

Investors also seemed to be looking ahead uneasily to a series of other government reports later this week, including monthly data Friday on the nation’s international trade position for December.

Bond prices were mostly higher today but backed off from earlier gains that followed news of higher-than-expected retail sales in January.

The Treasury’s closely watched 30-year bond was up 3/32 point, or about $1 for every $1,000 in face value, around midday. Its yield, which moves inversely to its price, was at 9.05%, down from 9.06% late Monday.

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Bond prices jumped after the Commerce Department reported that retail sales rose 0.6% in January, but by midday the market had given up most of its gains.

The retail data was the best since a 1.3% increase in November, but the overall rate was held back by a 0.9% drop in car sales last month, the government said.

The brief jump in bond prices surprised many analysts who said the retail data should have been neutral to negative for the market.

“I’m surprised, after the retail sales data, that the market did as well as it did,” said Elizabeth Ginste Reiners, vice president of money market research for Dean Witter Reynolds Inc.

“But the market is settling back to levels more appropriate with what the retail sales data would indicate: that possibly greater levels of spending could fuel inflationary psychology.”

Bad News for Bonds

Normally, data suggesting higher inflationary pressures is bad news for the bond market because inflation erodes the value of fixed-income securities like bonds and notes. An acceleration of inflation could also prompt the Federal Reserve to tighten credit and encourage higher interest rates, depressing bond prices.

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A sagging dollar was also helping pull down bond prices at midday, traders said.

In the secondary market for Treasury bonds, prices of short-term government issues were up 1/16 point, intermediate maturities increased between 1/16 point and 1/8 point and long-term issues were unchanged to 1/8 point higher, according to the Telerate Inc. 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 outstanding Treasury issues with maturities of a year or longer, advanced 0.45 to 1,127.08.

In corporate trading, industrials also declined. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, was up 0.17 to 297.56.

Yields on three-month Treasury bills fell to 8.78% as the discount slipped to 8.55%. Yields on six-month bills declined to 9.04% as the discount fell to 8.54%. Yields on one-year bills slipped to 9.21% as the discount declined to 8.54%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.

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The federal funds rate, the interest on overnight loans between banks, was quoted at 9 1/4%, unchanged from late Monday.

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