Interest Rate Jitters Scare 81 Points Out of Dow : Markets: Widespread selloff is steepest since November. Bond yields rise on news of smaller overall U.S. trade deficit.
The stock market plunged Thursday in its most serious selloff since November, as investors grew alarmed that the recent steep drop in interest rates may have ended.
The Dow Jones industrial average plunged 81.96 points to close at 4,340.64. It was the worst one-day decline since the blue-chip index fell 91.52 points on Nov. 22 and the third straight daily loss following six consecutive record highs.
The selloff was aggressive and widespread, with declining issues leading advancers by a 5-2 margin on the New York Stock Exchange.
NYSE volume was heavy at 348.37 million shares, up slightly from Wednesday’s 347.91 million.
The steep drop in the Dow caused the NYSE to impose restrictions on computerized program trading at 3:35 p.m.
Broad-market indexes also fell. The NYSE’s composite index fell 3.72 points to 279.80, and the Standard & Poor’s 500-stock index slid 7.49 points to 519.58.
The Nasdaq composite index lost 7.87 points to 864.06, and the American Stock Exchange’s market value index fell 2.07 points to 487.45.
Stock prices headed lower at the opening bell as Treasury bond yields rose, pushing their prices lower.
Yields rose after the government reported a smaller U.S. trade deficit, a possible sign of economic vigor that spurred investors to sell bonds bought during the recent rally.
The yield on the benchmark 30-year bond rose 0.03 point to 6.89% from 6.86% on Wednesday. Its price, which moves inversely to yield, dropped 7/16 point, or $4.38 per $1,000 in face value.
While the price retreat was modest, it was the second consecutive day of losses in a market that until Tuesday was rocketing higher in a powerful two-week rally.
Moreover, the Treasury setback triggered the steep stock market selloff as investors grew alarmed that the recent interest rate declines may be coming to an end.
Long-term rates, especially in the market for Treasury issues, have been falling for months. Low rates make corporate borrowing cheaper and can boost profits, which enhances stock values.
The selloff was intensified by Friday’s expiration of options tied to stock indexes, which often adds to volatility. Traders said computerized program trading, which usually increases during the days leading up to these expirations, was prominent throughout the day.
Some market participants voiced little surprise at the downturn, saying the market was long overdue for a pullback. The Dow has gained more than 700 points since Thanksgiving.
Among Thursday’s highlights:
* Cyclical stocks that rise and fall with the general economy were among the weaker issues, including industrial machinery, textiles, steel and paper products. Georgia Pacific fell 2 3/8 to 78 1/4. Cummins Engine slid 1 3/8 to 46 3/8.
Stocks of some chip makers and semiconductor equipment makers gave another strong performance.
* Intel finished unchanged at 110 3/4; Applied Materials was up 31/64 to 80 3/4, VLSI Technology rose 9/16 to 26 1/4, Alliance Semiconductor gained 1 3/4 to 42 1/4 and Micron Technology rose 4 1/8 to 94 1/8.
* Other computer issues, which have been market leaders lately, gave ground. IBM fell 1 3/4 to 93 1/8. Microsoft declined 1 3/8 to 84 5/8.
* Xerox fell 4 3/8 to 117 3/4 after the company declared an unchanged dividend amid speculation that the payout might be raised, analysts said.
* Brunswick lost 3 1/4 to 20 1/8 on worries that cold spring weather has slowed boating orders, Smith Barney said.
* Computer Associates lost 4 to 68 3/4 on speculation that the company revenue may level off, traders said.
* Cray Research rose 2 7/8 to 23 3/8 after its CEO said the company intends to continue to focus on making supercomputers.
* Financial institution stocks fell on the interest rate worries. Citicorp fell 3/4 to 50 1/4. Merrill Lynch lost 1 3/4 to 45 1/2.
* A report by Johnson & Johnson that analysts’ estimates of its 1995 profits are a bit high helped pull health care stocks lower. Johnson & Johnson fell 2 1/8 to 62. Bristol-Myers Squibb declined 1 1/2 to 63 5/8.
In Tokyo, the Nikkei 225-share average fell 158.79 points to close at 16,312.56. Frankfurt’s 30-share DAX average ended 8.19 points lower at 2,087.13, and London’s FTSE-100 average dropped 11.6 points to 3,285.8.
Mexico’s Bolsa index was off 49.99 points at 2,014.76--a loss of 2.4%.
* MARKET BEAT
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