Dow Discounts Deficit Drop, Rises 3.08

Stock prices hovered in a narrow range today in an unenthusiastic response to news of a smaller-than-expected U.S. trade deficit.

The Dow Jones average of 30 industrials rose 3.08 to 2,635.66.

But declining issues slightly outnumbered advances on the New York Stock Exchange, with 728 up, 739 down and 501 unchanged.

Big Board volume totaled 148.37 million shares, against 155.13 million in the previous session.

The NYSE’s composite index slipped .01 to 188.75.

The news helped the dollar post gains against leading foreign currencies. But the response in the domestic bond market was less enthusiastic.

Bond prices were lower in moderate trading today. The Treasury’s closely watched 30-year bond fell 9/32 point, or about $2.80 for every $1,000 in face value. Its yield, which rises when the price falls, rose to 7.87% from 7.85% late Wednesday.

Credit analysts said today’s trade deficit report suggested that the economy may not be as weak as other recent government reports have suggested.

“If the economy is not that weak, then the Fed is not going to ease that much,” said Maria F. Ramirez, managing director and money market economist with Drexel Burnham Lambert Inc.

Slower growth encourages the Federal Reserve to take steps that would lower interest rates in order to encourage borrowing and stimulate the economy. Lower rates on new issues make such existing fixed-income investments as bonds more valuable.

In the secondary market for Treasury bonds, prices of short-term government issues fell 1/16 point, intermediate maturities declined between 1/16 point and 1/8 point and long-term issues were off between 1/8 point and 9/32 point, according to figures provided by 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, was down 0.96 to 1,196.77.

Yields on three-month Treasury bills rose to 7.90% as the discount gained 2 basis points to 7.65%. Yields on six-month bills advanced to 7.78% as the discount increased 1 basis point to 7.40%. Yields on one-year bills rose to 7.68% as the discount added 2 basis points to 7.19%.

The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8 7/16%, down from 8 1/2% late Wednesday.