STOCKS : Dow Index Falls 27.72 on Lack of Fed Action

Investors, dismayed by the Federal Reserve’s decision not to lower interest rates despite a surprisingly weak March employment report, sold stocks in choppy trading Friday.

“All week the stock market had been focusing on interest rates coming down,” said Edward Shopkorn, a general partner at Mabon Nugent. “And now that the Fed hasn’t eased, the realization of a longer and deeper recession is coming home.”

The Dow Jones industrial average fell 27.72 points to 2,896.78, leaving it down 17.08 for the week. Declining issues outnumbered advances 936 to 598 in nationwide trading of New York Stock Exchange-listed stocks.

Big Board volume was moderate at 187.41 million shares, down from Thursday’s 198.12 million.

But small stocks managed to escape the worst of the selloff, with the record-setting NASDAQ index falling less than the Dow. It closed with a loss of 1.78 points at 495.79.

The Labor Department reported that unemployment in March climbed to a four-year high of 6.8% from 6.5% in February, while non-farm payrolls fell by a larger-than-expected 206,000.

“The numbers were worse than anticipated,” said A. C. Moore at Argus Investment Management. But he said the Fed’s failure to act does not rule out future rate cuts. “The tone has been set for the stock and bond markets for a Fed ease,” he said.

Alice Sadlo, a McDonald & Co. vice president, said investors are also facing weak corporate earnings.

Among market highlights:

* Pepsico topped the Big Board’s most-active list, falling 7/8 to 33 1/4 on more than 4.2 million shares traded. The soft-drink company said it did not consider its stock activity unusual.

* Blockbuster Entertainment gained 3/4 to 12 1/8. Analysts at Kidder Peabody and Merrill Lynch recommended buying the stock.

* Bank of Boston lost 1 3/8 to 9 1/4. Analysts said terms of a planned stock offering to raise $1 billion in capital for its bid for failed Bank of New England seemed pricey.

* Agouron Pharmaceuticals jumped 8 3/4 to 19 on investor enthusiasm over its discovery of a key protein in the development of HIV infections.

* Paramount lost 1 1/2 to 38 1/2 after it said it will probably report a loss in the second quarter.

* Genetics Institute fell 1 1/4 to 40. It reported a first-quarter loss.

* Among actively traded blue chips, International Business Machines dropped 7/8 to 112 5/8, Philip Morris dipped 7/8 to 67 3/4, Boeing eased 1/4 to 48 7/8 and American Express slipped 3/8 to 28 1/2.

Elsewhere, discouragement over recovery prospects showed up in a range of cyclical stocks whose fortunes often closely follow the ups and downs of the economy.

In the retailing sector, for example, Sears Roebuck dropped 1 1/4 to 33 5/8, J. C. Penney fell 1 1/2 to 52 5/8, Kmart lost 1/2 to 40 5/8 and Woolworth gave up 1/4 to 33 1/4.

Abroad, German shares climbed nearly 1% to the highest closing level in a month. The 30-share DAX index ended 14.90 points higher at 1,586.87, its highest close since 1,602.29 on March 8.

Share prices rose sharply on the London Stock Exchange. The broad-based Financial Times 100-share index climbed 20.8 points to end the week at 2,545.3.

Tokyo stocks edged higher after a seesaw session. The key 225-share Nikkei average was up 77.52 points to 26,767.33.

Credit

Bonds rallied moderately on the news about an increase in unemployment.

The Treasury’s 30-year bond gained 1/8 point, or $1.25 per $1,000 in face amount. Its yield, which moves in the opposite direction from price, fell to 8.17% from 8.18% late Thursday.

The rise showed that the economy has not experienced the postwar boom that many economists had predicted. Bonds generally rise on negative economic news on the expectation that the Fed will lower interest rates.

Market strategists said the rise in bond prices, in fairly active trading, was tempered by the market’s expectations.

Traders “had well in advance discounted the news we got,” said Carl Napolitano, an executive vice president with R. C. Government Securities.

The federal funds rate, the interest on overnight loans between banks, was quoted at 5.5%, down from 5.75% late Thursday.

Currency

The dollar rallied worldwide despite the worse-than-expected report on the nation’s jobless rate.

The currency initially fell after release of the report. But when there was “no confirmation by the Fed that any easing was taking place, the market had a vicious short-covering rally,” said John McCarthy, chief dealer at Algemene Bank Nederland in New York. Lower interest rates make dollar-denominated securities less valuable to investors.

Traders had sold dollars in anticipation that the unemployment report would point to continuing economic deterioration. The report was marginally worse than expected, prompting traders to continue selling dollars on the belief that the Federal Reserve would move to trim interest rates to stimulate growth, McCarthy said.

“People were nervous when the Fed didn’t ease,” said Kevin Lawrie, director of foreign exchange at Bank of Boston’s New York office. “They were totally confused.”

McCarthy said the dollar drew strength from the German mark, which has been declining in the face of rising unemployment triggered by the unification with East Germany.

The dollar finished at 1.6850 German marks, compared to 1.6690 on Thursday. It gained only modestly against the Japanese yen, rising to 136.75 from 135.95.

Other late dollar rates in New York, compared to late Thursday’s rates: 1.4215 Swiss francs, up from 1.4033; 5.7030 French francs, up from 5.6495; 1,251.75 Italian lire, up from 1,241.00, and 1.1543 Canadian dollars, down from 1.555.

Commodities

Futures prices for silver and other industrial metals sank after the unemployment report was released.

On other commodity markets, cotton futures surged, grains and soybeans were mostly higher, energy futures were mixed and livestock and meat futures were mixed.

Silver futures settled 10.7 to 12.7 cents lower on New York’s Commodity Exchange, with the contract for delivery in May at $3.95 an ounce and the spot price at $3.935 an ounce.

Among other industrial metals, April copper deliveries fell 1.1 cents to $1.079 a pound on the Commodity Exchange, April platinum deliveries fell $2.10 to $399.90 an ounce on the New York Mercantile Exchange and June palladium dropped $2.10 to $92.35 an ounce on the New York Merc.

Gold, which is considered almost exclusively an investment metal, edged higher on the Commodity Exchange, settling 30 to 40 cents higher, with April at $359.80 an ounce.

The drop in industrial metals marked a sharp turnaround for silver, which had risen more than 6% during the four trading sessions ending Wednesday on speculation that the recession was nearly over.

But hopes for a recovery were dimmed by the unemployment report.

Meanwhile, light sweet crude oil was 2 to 33 cents lower, with May at $19.96 a barrel.

Market Roundup, D6