Dollar Does a Number on Stocks; Dow Tumbles 50 Points : Markets: It’s the second-highest point drop this year. Bond yields jump as analysts fear that the Fed will raise rates.

Stocks fell sharply Friday and bond yields jumped as Wall Street reacted fearfully to a plummeting dollar.

The Dow Jones industrial average skidded 50.79 points, or 1.5%, to 3,254.10, pushing the blue chip index to its lowest close since early April.

The loss also was the Dow’s second-biggest point drop of the year after its April 7 plunge of 61.94 points.

The market opened higher on the heels of President Bush’s acceptance speech Thursday night. But when the dollar slumped to new all-time lows against the German mark in the late morning, bond yields began to rise, and investors began to dump stocks.

The selling was heightened by computerized program trading, which turned heavy as the day wore on. Friday marked the regular expiration of some key stock option contracts, and such expirations often result in active trading as big market players close out bets they had made using option contracts.

The Dow’s loss ran nearly to 50 points in the afternoon, narrowed to about 39 points near the close, then shot up in the final minutes as options trading finished in a burst of activity.

Even though trading was skewed by options, however, analysts said many investors were selling for fundamental reasons. The collapse of the dollar raises worries that the Federal Reserve will have to raise interest rates soon--or at least refrain from cutting rates further--in order to support the dollar against other world currencies.

Many investors have been betting that the Fed would cut rates again to help the struggling economy. As those hopes evaporated Friday, industrial companies whose profits are tied directly to economic swings saw their stocks plunge.

Within the Dow index, the big losers included Alcoa, down 3 1/8 to 64 3/4; Exxon, off 2 1/8 to 63 1/4; Goodyear, down 1 3/8 to 65 1/4, and 3M Co., which fell 1 1/2 to 99 1/8.

Overall, losing issues topped winners 1,040 to 667 on the Big Board, where volume swelled to 204.80 million shares from 183.42 million Thursday.

Meanwhile, the yield on the Treasury’s 30-year bond rose to 7.35% from 7.32% Thursday. Shorter-term yields also rose. Though the rise in rates was not dramatic, it was significant because “all year long the bond market has been ignoring the falling dollar,” said Phil Roth, analyst at Dean Witter Reynolds in New York.

Because the bond selloff began at the same time as the dollar plunge on Friday, analysts are worried that investors’ mind-set about the relationship between the two markets has changed. If bond investors perceive that the Fed must raise interest rates to support the dollar, they are likely to demand much higher yields on existing bonds, causing a further selloff in that market and rippling into stocks as well.

In other markets Friday:

* Tokyo stocks continued their sharp rebound, as the Nikkei average soared 949.12 points, or 6.2%, to 16,216.88. The government on Tuesday proposed a series of steps to help restore confidence in the market.

* London’s Financial Times 100 index added 6.3 points to 2,365.7, while Frankfurt’s DAX index gained 6.96 points to 1,520.02.

* Mexico City’s Bolsa index slid 14.39 points to 1,424.64, wiping out the last of its year-to-date gain.

* Gold and silver were marginally lower in New York Comex trading, at $337.30 and $3.72 an ounce for near-term contracts, respectively.

Credit

The price of the Treasury’s main 30-year bond fell 13/32 point, or $4.06 per $1,000 in face amount, tumbling from gains of more than $5 in morning trading. Its yield, which falls when prices rise, ended at 7.35%, up from 7.32% late Thursday.

Fears of a Bush speech that would foster concerns about larger deficits had been hanging over the market. Large deficits usually lead to increased borrowing by the Treasury, which adds to the supply of bonds.

Yields on three-month Treasury bills fell to 3.13% as the discount fell 1 basis point to 3.07%. Yields on six-month bills held at 3.26% as the discount stayed at 3.17%. Yields on one-year bills sold at auction Thursday rose to 3.44% as the discount gained 4 basis points to 3.32%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.

The federal funds rate, the interest on overnight loans between banks, fell to 3 1/8% from 3 1/4% late Thursday.

Commodities

Cattle futures closed lower Friday ahead of a closely watched report on the size of herds on feedlots. The seven-state report, from the Department of Agriculture, points to further declines Monday morning, traders said.

Energy futures closed lower on the New York Mercantile Exchange after a late bout of speculative long liquidation.