Dow Plunges 38.74 as Global Interest Rises

The stock market dropped sharply today as an upward trend in worldwide interest rates troubled traders, analysts said.

The Dow Jones average of 30 industrials dropped 38.74 points to 2,596.85.

Declining issues outnumbered gainers by about 4 to 1 on the New York Stock Exchange, with 320 up, 1,267 down and 380 unchanged.

Big Board volume totaled 147.30 million shares, against 174.63 million in Friday’s session.

The NYSE’s composite index lost 2.38 to 181.37.

At the American Stock Exchange, the market value index lost 3.89 to 354.88.

The analysts said the tone for the session was set by rising interest rates in Japan and West Germany as U.S. traders returned after the long Presidents Day weekend.

“The worry on Japan rates is really what is hurting us,” said Daniel Williams, head position trader for Dillon, Read & Co.

Prices of U.S. Treasury bonds plunged in early trading today following a surge in interest rates overseas and unexpectedly upbeat remarks from Federal Reserve Chairman Alan Greenspan on the nation’s economy.

“It’s a tough day here in bond land,” said Kevin Flanagan, a money market economist for Dean Witter Reynolds Inc.

The Treasury’s bellwether 30-year bond tumbled 1 1/4 point, or about $12.50 per $1,000 face value, by midday. Its yield, which rises when its price falls, shot up to 8.63% from 8.46% late Friday.

Flanagan said a sharp hike in interest rates in the public bond markets of Japan and West Germany helped trigger today’s sell-off.

As rates rise overseas, U.S. rates often follow suit to remain competitive, thereby pushing bond prices lower.

Adding to the downward pressure on prices were comments Greenspan made in his annual appearance before Congress today, Flanagan said.

Greenspan said the economy has likely passed the danger point for an imminent recession. He predicted continued, albeit modest, economic growth for the rest of this year.

The testimony bolstered the belief among many private economists that the Fed isn’t likely to move soon to push interest rates lower.

Some economists said bond prices also were hurt by concerns of a recent deluge in available government securities following last week’s federal bankruptcy filing of Drexel Burnham Lambert Inc.

In addition, the Treasury Department said today it will borrow $6 billion more than previously announced during the January-March quarter to meet the requirements of the savings and loan bailout. That put pressure on Treasury bill yields, since the government said the additional funds will be obtained through regular auctions of weekly three- and six-month bills and 52-week bills.

By midday in the secondary market for Treasury securities, prices of short-term government issues slid between 1/4 point and 3/8 point, intermediate maturities were 3/8 point to 3/4 point lower, and long-term issues plunged as much as 1 1/4 point, according to figures provided by 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, stood at 1,151.60, down 8.69.

Meanwhile, yields on three-month Treasury bills jumped to 8.02% as the discount rose 11 basis points to 7.78%. Yields on six-month bills climbed to 8.12% as the discount increased 7 basis points to 7.72%. Yields on one-year bills rose to 8.21% as the discount soared 13 basis points to 7.65%.

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.

The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at midday at 8 3/16%, unchanged from late Friday.