Financial Markets : STOCKS : Dow Falls 15.99 on Decline in Treasury Bonds

From Times Wire Services

The stock market suffered another broad setback Friday in selling attributed to a sharp fall in the U.S. Treasury bond market and worries about inflation.

The Dow Jones index of 30 industrials dropped 15.99 to 2,695.95, closing out the week with a 55.85-point loss.

In the broader market, declining issues outnumbered advances by more than 5 to 2 in nationwide trading of New York Stock Exchange-listed stocks.

Big Board volume rose to 174.26 million shares, against 152.93 million Thursday.

The stock market has dropped sharply this week, largely in response to a steep plunge in bond prices, pushing yields to their highest levels in 11 months. As bond prices fall, their yields rise.

"We had two bad days in a row, and so, had downside pressure coming in today," said Alfred Goldman, director of technical research at A. G. Edwards. "Bonds were again under attack, and we had a big increase in short-term bearishness--that all brought in selling."

Talk of massive bond sales by Japanese investors, who were trying to make up for losses suffered in the Tokyo stock market, sparked the bond selloff earlier this week.

Stock and bond prices also fell on continued worries about persistent inflation combined with a generally weak economy.

The upward pressure on market interest rates followed a government report Tuesday that consumer prices rose a sharp 0.5% in March.

Rising interest rates depress stock prices as investors seek higher yields available in cash investments such as money market accounts and CDs. Higher interest rates also point to slower economic growth ahead.

Brokers said traders also were unsettled by the news late Thursday that Moody's Investors Service was reviewing its ratings of some of the debt of Citicorp.

Citicorp shares fell 1/2 to 23 3/8 in active trading.

Among stocks of other prominent money-center bank holding companies, Chase Manhattan dropped 5/8 to 27; Manufacturers Hanover fell 1 3/8 to 32; Chemical Banking lost 5/8 to 23 1/4, and J. P. Morgan dipped 3/8 to 33 5/8.

Stock prices on the Tokyo Stock Exchange closed mixed in a session. The blue chip Nikkei 225-share index, which had surged 696.35 points Thursday, fell 109.97 points to close out the week at 29,835.44.

Share prices finished slightly higher on London's Stock Exchange after a drab session. The Financial Times 100-share index rose 2.4 points to close at 2,187.1.

CREDIT Deficit Worries Hurt Bond Prices Bond prices fell sharply amid concern about a wider-than-expected federal budget deficit and a regional report that showed the economy improving.

The Treasury's benchmark 30-year bond fell a full point, or $10 per $1,000 face amount. Its yield, which rises when prices fall, rose to 8.94% from 8.84% late Thursday.

Bond prices rose slightly after the day's trading began but were sent lower by the release of a survey of companies in the Philadelphia region that showed economic activity picking up, said Steven R. Ricchiuto, chief economist for Barclays de Zoete Wedd Government Securities Inc.

Reports of an improving economy tend to hurt bond prices due to concern that the Federal Reserve will not see a need to ease interest rates.

Later, the government said the budget deficit for March totaled a record $53.3 billion, up to $13 billion higher than Wall Street expected, Ricchiuto said.

A larger deficit causes concern in the bond market that the government might have to sell additional issues to meet the shortfall. Increased bond supply can depress prices temporarily.

The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.188%, down from 8.938% late Thursday.

CURRENCY Baltic Tensions Boost the Dollar The dollar closed higher on world currency markets as investors sought a safe haven amid heightened tensions between Lithuania and the Soviet Union.

Traders said the market focused on events in the Soviet Union, where the government toughened its economic embargo against Lithuania by diverting some shipments of food, metal, wood and industrial parts.

Earlier this week the Kremlin cut off most of the natural gas and all of the oil it supplies to the Baltic republic, which is attempting to secede from the Soviet Union.

Further rocking the currency market was a report that dozens of Red Army soldiers stormed a Lithuanian printing plant and beat at least a dozen people.

In times of world turmoil, investors flock to the dollar, which is viewed as a "safe-haven" currency.

COMMODITIES Copper Sinks, Other Metals Are Mixed Copper futures prices fell sharply on New York's Commodity Exchange amid improved supply prospects and perceptions that demand for the metal is entering a seasonal decline.

On other commodity markets, precious metals were mixed; coffee futures climbed; energy futures were mixed; livestock and meat futures were mixed, and soybeans advanced while grain futures were mixed.

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