Dow Drops 20, Later Rebounds to Gain 7.25

Stock prices were mixed today at the close of a volatile session.

The Dow Jones average of 30 industrials, down nearly 20 points at mid session, closed with a 7.25 gain at 2,666.38.

Declining issues outnumbered advances by about 3 to 2 on the New York Stock Exchange, with 587 up, 879 down and 501 unchanged.

Big Board volume totaled 178.59 million shares, against 170.47 million in the previous session.

The NYSE’s composite index rose .21 to 187.07.

Analysts said blue chips benefited late in the day from buying by professional traders engaged in multiple computer-program strategies, but they described the overall news background as bleak.

The market has been unsettled lately by a series of weak corporate earnings reports for the last three months of 1989.

At the same time, brokers said fears of a developing recession were intensified by recent upward pressure on interest rates in this country and in other leading industrialized countries.

Rising rates in Japan, Germany and England are seen as a deterrent to any move soon by the Federal Reserve to relax its credit policy.

Fed policy makers are believed to be concerned that lower rates in the United States would prompt a flow of money out of American credit markets into foreign securities with increasingly attractive yields.

That perception has helped push U.S. interest rates higher in the last several days.

Bond prices tumbled in early trading today as the government report in the increase in the consumer price index fueled inflation fears and Federal Reserve Board members suggested that they do not favor lowering interest rates.

The Treasury’s benchmark 30-year bond had fallen 1 point, or $10 per $1,000 face amount, by midday. Its yield, which rises when prices fall, soared to 8.34% from 8.25% late Wednesday.

Bond prices opened sharply lower after a report in the Wall Street Journal quoting Fed Vice Chairman Manuel Johnson and board member Wayne Angell saying they will not support lower interest rates unless economic and financial conditions change.

The government then issued its report that the CPI rose 0.4% in December, bringing inflation for the year to an eight-year high of 4.6%.

“It’s a continuing inflation fear phenomenon,” said Ray Stone, managing director of Stone & McCarthy Research Associates Inc. “The CPI, although it wasn’t as bad as it could have been, didn’t cool those inflation fears.”