Stocks fell and bond yields inched up Friday as investors cashed in profits after a widely anticipated interest rate cut by the Federal Reserve.
The Dow Jones industrial average fell 22.14 points to 2,985.69, finishing the week with a net loss of 25.94 points.
"It's the old saying of 'buy on the rumor, sell on the news,' " one analyst said.
New York Stock Exchange volume held at a moderate 167.96 million shares, against Thursday's 160.42 million. Declining issues outnumbered advances by about 4 to 3 on the Big Board.
The Fed cut its key discount rate to 5% from 5.5% in a bid to stimulate the economy. The move prompted some of the nation's major banks to lower their prime lending rates to 8% from 8.5%.
The Dow index initially rose nearly 6 points on the rate cut, but sellers later flooded the market.
The Fed move followed an economic report that showed retail sales fell 0.7% in August, the steepest in seven months. Traders said some investors have begun to fear that the Fed's interest-rate cuts aren't helping to revive the economy.
"I'm not surprised that the market is responding this way," said A. C. Moore, analyst at Argus Research. However, he said stocks should benefit in the long run as the stimulus of loser rates helps corporate profits.
For now, "value is still a problem for the equity market," he said. "Stocks are bumping up against historic high (valuation) levels."
Analyst Sid Dorr at Charles Schwab & Co. said the fall in retail sales illustrated the sluggishness of the economy. "The consumer is just not stepping up to the plate."
Among the market highlights:
* Computer chip maker Intel tumbled 6 3/4 to 43 after projecting weakness in the third and fourth quarters, leading analysts to slash their earnings estimates.
Intel's plunge triggered a selloff in other technology stocks. IBM lost 1 1/8 to 102 7/8, Apple fell 2 to 48 5/8, AST Research lost 2 to 28 3/4, and Sun Microsystems dropped 1 1/4 to 30 5/8.
* In more bad tech news, Tektronix lost 4 to 24. The electronics company's fiscal first quarter results were below Wall Street expectations. Shearson Lehman Bros. cut its 1992 earnings estimate.
* Many industrial stocks gave ground on renewed worries about the economy. GE fell 1 3/4 to 67 7/8, Cooper Tire lost 1 to 33, Tenneco dropped 1 3/8 to 39, and steelmaker Nucor eased 2 1/4 to 80 3/4.
However, some industrial-metals companies bucked the trend. Copper giant Phelps Dodge rose 1 3/8 to 70 1/2, Inco added 3/8 to 32 3/4, and Reynolds Metals was up 1/4 to 57 3/8.
* Drug stocks weakened on profit taking. Merck lost 2 to 128 3/4, Schering fell 1 3/8 to 55 3/8, and Warner-Lambert fell 1 1/4 to 69 3/4. But many smaller medical products and services firms continued to advance, including Tokos Medical, up 1/2 to 34 1/2; TriCare up 5/8 to 16 3/4, and Sunrise Medical, up 3/8 to 25 5/8.
Also, U.S. Surgical gained 1 to 71. The company said it is comfortable with estimates of quarterly earnings of 37 to 40 cents a share, compared to 24 cents a year ago.
* L.A. banking giant First Interstate lost 3/4 to 30 1/8 after announcing a major loss and restructuring.
* Northrop continued to fall on pessimism about the future of the B-2 bomber. The stock fell 1 1/2 to 22 7/8. Its recent high was 31 1/4.
* Marion Merrell dropped 8 3/8 to 29 5/8. Dow Chemical decided to redeem certain contingent value rights issued when Dow bought about 67% of Marion. Some investors were apparently disappointed that Dow had decided not to buy the balance of Marion's shares. Dow Chemical rose 1/8 to 51 5/8.
* Southland-based Barry's Jewelers lost 1/2 to 1 1/4 on news of its debt restructuring.
Overseas, stocks surged in heavy trading on the Tokyo Stock Exchange, with the Nikkei average rising 604.23 points, or 2.7%, closing the week at 23,134.43.
Share prices closed broadly lower in London, hit by a burst of profit taking. The Financial Times 100-share average ended 16.1 points lower at 2,625.8, or nearly 42 points below its close last Friday.
German shares ended slightly firmer with Frankfurt's 30-share DAX index closing 6.30 points higher at 1,637.62.
Bond traders cashed in securities snapped up in expectation of the Fed's move.
The Treasury's bellwether 30-year bond, up 19/32 point in earlier trading, closed down 3/32 point, or about 94 cents per $1,000 in face amount. The yield edged up to 7.93% from late Thursday's 7.92%, but remained at a 20-month low.
The profit taking spree in the bond market closed a weeklong rally and led some economists to declare that the bond market has reaped most of the gains it had hoped to get from any Fed easing.
Lower interest rates generally boost the value of fixed-income securities.
"The market is making an assumption that this will be the final ease the Fed will have to put in to accomplish a recovery," said Jim Kenney, head trader in government securities at Prudential Securities in New York.
Bonds initially rallied but traders began taking profits after the Fed announced it was dropping the discount rate.
Later in the morning the Fed was believed to have cut its 5.5% target for the federal funds rate, the interest that banks charge each other for overnight loans, by 0.25%. The funds rate closed at 5.25%, down from late Thursday's 5.438%.
The dollar fell overseas but ended higher in U.S. trading despite the news of falling interest rates in the United States.
"The market has been so bearish and so anticipatory of the dollar's decline based on lower interest rates that when it happened it was sort of fait accompli ," said Robert Ryan, corporate foreign exchange manager at Bank of New York.
But the appetite for dollars still appeared weak, and the currency was likely to continue its slump, he said.
Jerry Egan, a currency trader at the Bank of Boston, said the market's movements Friday were not surprising and were very technically oriented.
"I think we may have seen the low, but I wouldn't want to stake a whole lot on it," he said.
Lower U.S. interest rates are meant to stimulate lending and make the economy grow. But they also make dollar-based securities less attractive to international investors, tending to weaken the dollar's value.
The dollar rose in New York to 1.685 German marks from 1.684 on Thursday but edged down to 134.15 Japanese yen from 134.08 on Thursday. The British pound fell to $1.7295 from $1.7325 Thursday.
Soybean traders were diverted by new crop data only briefly before the Soviet Union reasserted itself as the dominant factor in the bean pit.
Soybean futures advanced more than 7 cents a bushel in early dealings, but most of the gain was erased on word that the Agriculture Department is a long way from determining the extent of the Soviets' emergency food needs.
The crop production and supply report released by the Agriculture Department late Thursday projected smaller-than-expected carry-over of grain and soybean stocks a year from now. It also estimated a slightly smaller soybean crop than the market had anticipated.
"The market opened higher and traded through some key resistance areas, but there was no follow-through buying," said Steve Freed, an analyst in Chicago with Dean Witter Reynolds Inc.
Wheat for delivery in September settled 0.5 cent lower at $3.23 a bushel; September corn was 1.25 cents lower at $2.505 a bushel; September oats were 3.25 cents lower at $1.1825 a bushel, and September soybeans were 2.75 cents higher at $5.92 a bushel.
The precious metals market largely ignored the cut in the discount rate.
At New York's Commodity Exchange, gold for delivery in December was unchanged at $346.60 an ounce; December silver was 3.5 cents higher at $4.043 an ounce.
Energy futures were mostly higher on the New York Mercantile Exchange.
Light sweet crude oil for delivery in October was 15 cents higher at $21.68 a barrel on the New York Mercantile Exchange.