Dow Slips Back 18.07 on Inflation Worries

The stock market lapsed into a broad decline today, retreating from record highs amid renewed worries about inflation.

The Dow Jones average of 30 industrials fell 18.07 to 2,981.68.

Declining issues outnumbered advances by more than 2 to 1 on the New York Stock Exchange, with 469 up, 1.012 down and 546 unchanged.

Big Board volume totaled 168.76 million shares, against 176.79 million in the previous session.

The NYSE’s composite index dropped 1.66 to 198.83.

Before the market opened the Labor Department reported that the consumer price index rose 0.5% in June, surpassing many estimates by brokerage-firm economists.

The news raised new worries about the choices facing the Federal Reserve, which has taken steps in the past week to relax its credit policy.

Greater-than-expected inflationary pressures would stand to restrict the Fed’s options in its efforts to keep the economy growing and cushion it from the effects of a squeeze on the availability of bank credit.

Interest rates climbed in the credit markets following the CPI report, and the Dow Jones industrial average pulled back from the verge of the 3,000 level, which it had briefly crossed in each of the past three sessions.

Bond prices tumbled in early trading today on higher-than-expected inflation and congressional testimony by Federal Reserve Chairman Alan Greenspan that raised questions about the state of the economy.

The Treasury’s benchmark 30-year bond was down 25/32 point, or $7.81 per $1,000 face amount, around midday. Its yield, which rises when prices fall, soared to 8.53% from 8.45% late Tuesday.

The federal funds rate, the interest rate banks charge each other on overnight loans, held at 8% in trading today, the same as late Tuesday.

“If the probability of a recession is low, then how severe can the credit crunch be and why are we lowering monetary policy?” said Steven A. Wood, chief economist for BankAmerica Capital Markets in San Francisco.

“It’s not clear that an ease was necessary,” he said. “We haven’t seen a clear presentation of the facts and the inflation numbers don’t seem to be getting any better.”

In the secondary market for Treasury bonds, prices of short-term governments were 1/32 point higher to 1/32 point lower, intermediate maturities fell 1/16 point to 7/32 point and long-term issues were down as much as 3/4 point, according to 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, was down 3.22 to 1,159.10.

Yields on three-month Treasury bills were down to 7.78% as the discount lost 6 basis points to 7.54%. Yields on six-month bills declined to 7.85% as the discount was 2 basis points lower at 7.46%. Yields on one-year bills were down to 7.83% as the discount lost 2 basis points to 7.32%.