Stocks Hit by Bond Market Skid; Dow Declines 12.16

Stocks closed lower today, pulled down by a sharp fall in the bond market and fears of higher interest rates.

The Dow Jones average of 30 industrials fell 12.16 to 2,674.55.

Declining issues outnumbered advancers by about 8 to 5 on the New York Stock Exchange, with 555 up, 899 down and 502 unchanged.

Big Board volume totaled 145.44 million shares, against 114.79 million Monday.

The NYSE’s composite index fell 1.26 to 185.25.

At the American Stock Exchange, the market value index fell 1.08 to 360.79.

The bond market, reacting to the Commerce Department’s healthy retail sales report for February, concluded that interest rates were not coming down, and may even move up. As a result, bonds fell, bringing stocks down.

Bond prices fell in early trading today, weakened by a government report on retail sales for February.

The Treasury’s closely watched 30-year bond was down 7/16 point, or $4.37 for every $1,000 in face value, at around midday. Its yield, which rises when the price falls, jumped to 8.65% from 8.61% late Monday.

The Commerce Department said retail sales fell 0.9% in February, the sharpest decline since last October. But the drop mainly reflected a decrease in auto sales, which represent about 20% of total retail sales.

Excluding automobiles, retail sales actually rose 0.5% in February, indicating strength in the economy.

“The market focused more on the non-auto data,” said Elizabeth G. Reiners, a vice president at Dean Witter Reynolds Inc.

Signs of strong consumer spending and a robust economy tend to reduce the chances that the Federal Reserve would encourage lower interest rates. Retail sales represent about one-third of the nation’s economic activity.

In the secondary market for Treasury bonds, prices of short-term government issues slipped 1/16 point to 3/32 point, intermediate maturities declined 3/16 point to 9/32 point, and long-term issues fell 9/32 point to 7/16 point, according to figures provided by Telerate Inc., a financial information service.

The Shearson Lehman Hutton daily Treasury bond index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, was down 1.75 at 1,146.05.

Yields on three-month Treasury bills rose from Monday’s auction to 8.24% as the discount gained 3 basis points to 7.98. Yields on six-month bills increased from Monday’s auction to 8.31% as the discount edged up 1 basis point to 7.89. Yields on one-year bills rose to 8.45% as the discount advanced 4 basis points to 7.85%.

A basis point is one-hundredth of a percentage point.