Widened Trade Deficit Sends Dow Down 8.73

Wall Street closed lower in quiet trading today, as weaker trade figures hurt stocks, bonds and the dollar.

The Dow Jones industrial average slumped 8.73 points to 2,544.76.

Declining issues outnumbered advancing ones by about 7 to 5 on the New York Stock Exchange, with 618 up, 865 down and 519 unchanged.

Big Board volume totaled 152.35 million shares, against 131.96 million in the previous session.

The NYSE’s composite index fell 0.46 to 184.91.

The trade deficit widened 23.6% to $10.24 billion in May on a surge in imports. The strong demand raised concerns that the Federal Reserve may not be able to ease credit further, triggering a rise in credit market interest rates.

But stock market losses were small, with a recent rise in takeover activity lending support. The most actively traded stock was Marion Laboratories Inc., which agreed earlier in the day to be acquired by Dow Chemical Co.

News of the jump in the trade deficit jolted the bond market this morning, depressing prices and pushing up short-term interest rates for the second straight day.

A rising trade deficit signals faster economic growth and therefore higher inflation, which erodes the value of fixed-income holdings such as bonds, and puts pressure on the Federal Reserve Board to constrict borrowing to slow the economy down.

The Treasury’s key 30-year bond, which lost 1/2 point or $5 per $1,000 face amount Monday, fell another 1/2 point by late morning. Its yield, which moves inversely to price, rose to 8.17% from 8.12% late Monday.

In the secondary market for Treasury bonds, prices of short-term governments fell about 3/16 point, intermediate maturities fell 5/16 point and long-term issues fell about 1/2 point, the Telerate Inc. financial information service reported.

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 2.67 to 1,183.65.

Industrial and utility corporate bonds also weakened. Moody’s investment grade corporate bond index, which measures returns on a portfolio of 80 corporate bonds with maturities of five years or longer, fell 0.68 to 329.31.

Yields on three-month Treasury bills rose to 8.17% as the discount rose 5 basis points from the level at auction Monday to 7.91%. Yields on six-month bills rose to 8.16% as the discount rose 8 basis points from the level at auction Monday to 7.74%. Yields on one-year bills rose to 8.02% as the discount rose 5 basis points to 7.48%.

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, paid at maturity.

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