Inflation Fears, Growth Batter Stocks, Bonds : Markets: Dow loses 36.89 as blue chips plunge steeply for second day. Gold shares, dollar rise. Overseas stocks also lower.

Stocks and bonds tumbled Thursday as fresh signs of economic growth and fears of inflation sent interest rates soaring.

The Dow Jones industrial average ended down 36.89 at 3,624.98, making a 73-point drop since hitting the record high at Tuesday’s close. The blue chip average is down 1.9% in two days.

“It’s looking pretty darn ugly,” said analyst Bob Walberg at MMS International, “a lot worse than any normal recent correction that we’ve had.”

The Tokyo stock market lost more than 2% of its value, with the key Nikkei average dipping below the psychological support level of 19,000 for the first time since March 31. Stocks also moved lower in Frankfurt, London, Paris and Hong Kong as the stock selloff was felt globally.

The benchmark 30-year U.S. Treasury bond lost nearly a full point to end with a yield of 6.18%, compared with 6.12% Wednesday. On Oct. 15, bonds closed at an all-time low of 5.79%.

Recent rises in bond rates sent mortgage rates higher for the second week in a row, with the 30-year fixed-rate mortgage topping 7% this week for the first time since late August.

The dollar also climbed as international investors swung to the United States, fleeing the tumbling Tokyo stock market and in search of higher yields.

Gold prices jumped on new fears of inflation and speculation that international investor George Soros was selling off bonds and moving back into gold.

Investors have been cashing out of stocks and bonds lately on fears that interest rates have bottomed out and are now set to climb, along with the U.S. economy.

In the past week, there have been unmistakable signs that the long-dormant economic recovery is picking up steam, from the housing market to manufacturing.

New reports Thursday furnished fresh evidence that the economic expansion has gained momentum. Government statistics showed productivity of American workers improved, orders to U.S. factories increased and unemployment benefit applications declined.

“What people are sensing is that things are picking up on the heels of a very expansionary Federal Reserve policy,” said J. Patrick Rothstein, senior managing director of government securities trading at Bear Stearns and Co.

Investors were skittish because the government today will release the October unemployment report, which is expected to show a gain in job growth.

“If you get a better-than-expected payroll number, like up 200,000, the bond market is going to get beaten up again,” said Guy Truicko, portfolio manager at Unity Management.

The bond market does not like economic growth because with it comes inflation that can whittle the value of a fixed-income investment. So investors sold off the securities, and that sent market rates higher.

While many analysts said the stock market will eventually focus on growth and earnings, for now they are honing in on higher rates.

In the broad market, declining issues led advances 1,650 to 465. Volume on the New York Stock Exchange was heavy, at 321 million shares.

The Nasdaq index was hit even harder, dropping 15.69 points to 757.26.

Among the highlights from various markets:

* Inflation fears fueled demand for the shares of gold mining companies. ASA Ltd. gained $1.875 to close at $48, Hecla Mining Co. added 87.5 cents to $11.50 and Newmont Mining Corp. was up 50 cents to $53.875. Echo Bay gained 1/8 to 12 5/8.

* Utility and financial stocks continued under pressure amid rising interest rates. American Electric Power fell 5/8 to 35 5/8 and Public Service Enterprise dropped 1 1/4 to 30 7/8.

Among financial stocks, First Interstate Bancorp lost 2 1/8 at 54 1/8, Wells Fargo & Co. closed down 2 1/2 at 105 7/8. Among money center banks, Citicorp dropped 5/8 to 34 3/4 on NYSE-leading volume of nearly 3.4 million shares, while Chemical Bank shed 1 3/4 to 37 7/8.

* Some retail stocks rose on better-than-expected October sales figures. Sears gained 1/4 to 57 5/8 after reporting same-store sales up 12.7%. Wal-Mart posted same-store sales up 8% and its shares added 1/8 to 27 3/4. But Kmart lost 1/2 at 24 3/8.

Retailers posting lower same-store sales include Dayton Hudson Corp., closing 3/8 lower at 70; Federated Department Stores, 1/2 higher at 20 1/4; Woolworth’s Corp., down 7/8 at 21 3/4; and specialty retailer Limited Inc., down 1/2 at 20 7/8. Gap Inc. lost 2 at 34 1/8.

* British Petroleum closed 1 1/2 higher at 63 1/4 after reporting higher-than-expected third-quarter earnings.

* Technology issues generally took a drubbing, amid disappointing earnings reports and forecasts. Active issues on the Nasdaq included Intel, which dropped 1 7/8 to 59 on Nasdaq-leading volume of more than 8 million shares. Cisco Systems Inc. closed down 1 1/4 at 49 3/4; Software Toolworks Inc. declined 1 1/8 at 13 7/8.

* One of the Big Board’s biggest losers was Countrywide Credit, which plunged 2 1/2 to 25 1/2 on heavy volume of more than 3.2 million shares. The investment rating on the company’s stock was cut by an Oppenheimer & Co. analyst.

* Overseas stock markets fared poorly Thursday following the plunge in Tokyo, where the 225-issue Nikkei average shed 431.45 points, or 2.23%, closing at 18,949.79. In London, the Financial Times 100 index ended 13.3 points off at 3,149.0, while Frankfurt’s blue-chip DAX 30-share index fell 21.75 points to 2,062.61. In Paris, the CAC 40-share index lost 35.19 to 2,135.97.

Hong Kong stocks fell sharply for the second consecutive day but met support at lower levels. The blue-chip Hang Seng Index tumbled 147.23 points, or 1.57%, to close at 9,204.88.

Other Markets

In the currency market, the dollar rose sharply as investors were attracted to higher U.S. rates. European and Japanese yields have been falling as those economies try to stimulate growth.

The dollar rose to 1.6961 German marks in late New York trade, up from 1.6943 marks Wednesday. It also rose to 108.20 yen from 107.65 Wednesday.

The Soros rumors pushed gold up $4.40 to $372.40 an ounce on New York’s Commodity Exchange, adding to a late rally Wednesday.

The upturn also lifted other precious metals. Silver for delivery in December rose 7.5 cents to $4.382 an ounce and January platinum moved up $1.60 to $375.80 an ounce on the New York Mercantile Exchange.

Analysts said the excitement in gold was ignited by talk that billionaire speculator Soros was changing his investment mix, possibly shifting into gold from bonds as signs of a strengthening economy fanned concern over renewed inflation.

They said that Soros, who heads the Quantum Fund, had been heavily invested in bonds and the jump in long-term bond interest rates may have provoked the switch.

Oil prices fell slightly Thursday, taking a break from the broad price swings of the past week.

Light sweet crude oil for delivery in December settled at $17.40 per barrel, down 9 cents, at the New York Mercantile Exchange.

Market Roundup, D6

Two-day Loss Thurs. Market/Index point chg. pct. close Hong Kong/Hang Seng -438.03 -4.5% 9,204.88 U.S./Nasdaq composite -28.40 -3.6% 757.26 Japan/Nikkei 225 -431.45 -2.2% 18,949.79 U.S./Dow industrials -72.66 -2.0% 3,624.98 Germany/DAX -32.97 -1.6% 2,062.61 Britain/FTSE-100 -15.10 -0.5% 3,149.00

Source: Reuters