Dow Off 57 After Falling by 135 Points

Executing a classic selloff after soaring to record heights, the stock market fell sharply Wednesday, with prices gyrating wildly in the heaviest trading day in history. Plunging prices for shares of technology companies led the decline, but many analysts said the drop was not the start of a market meltdown.

The Dow Jones average of 30 industrial stocks, down 135 points at mid-session, recovered somewhat to finish with a 57.41-point loss at 4,628.87--still its worst one-day point decline in two months. Only two days ago, the key indicator of blue-chip stocks had hit a record 4,736.29.

The pullback, which followed a 50.01 drop Tuesday, was a natural yet powerful “correction” to the market’s sparkling rise this year, and not the beginning of panic selling that would lead to a repeat of the October, 1987, market crash, several analysts said. The Dow Jones industrial average, for instance, is still ahead 21% in 1995, and technology stocks are up much more.

“I don’t see any reason to be overly alarmed at this time,” said Jack Baker, managing director of stock trading at Furman, Selz Inc. in New York.

Fulfilling the obvious prophecy that prices can’t go up forever, traders sold to take advantage of the rich profits they’ve earned in recent months.

Also contributing to the decline was a rise in bond yields amid speculation that comments on Wednesday by Federal Reserve Chairman Alan Greenspan preclude another Fed interest rate cut soon. Greenspan said the U.S. economy might be past the point of “maximum risk” of recession.

Overall, six stocks fell for every one that rose on the New York Stock Exchange, where the stunning trading volume caught many analysts off guard.

NYSE volume totaled 482.9 million shares, the busiest trading ever behind Oct. 19-20, 1987, when Big Board volume on each of those days surpassed 600 million shares.

But when the NYSE’s volume was combined with the record 597.5 million shares traded on the Nasdaq Stock Market and trading on other exchanges, total volume surpassed 1.2 billion shares, more than the previous record 1 billion that traded when the market crashed in 1987.

The Nasdaq market, in fact, had trouble keeping up with all of the orders for trading stocks and stock options in that market, traders said.

“You can only stay at the punch bowl so long before they have to carry you out,” Hugh Johnson, chief investment officer at First Albany Corp. in Albany, N.Y., said in reference to the heady gains investors have enjoyed this year.

“When you own a sector like technology [stocks] that’s up 40% this year, it is not unreasonable to want to lock in profits,” he said.

One of the market’s main gauges of technology stocks, the Nasdaq composite index, tumbled 35.66 points to 952.87--its worst point drop since its record plunge of 46.12 points on Oct. 19, 1987, during the crash. The index--a favorite among small investors--had topped the historic 1,000 mark for the first time on Monday.

But because the stock market has risen so much in the past eight years, the market’s losses Wednesday were much less severe than in 1987. Whereas the Nasdaq index plummeted 11.4% during its record loss in 1987, its decline Wednesday amounted to 3.6%.

Many amateur investors said they took the gyrations in stride. “The market’s been going crazy for the last six months, there’s been no doubt there was going to be a correction,” said lawyer Jeffrey Dintzer while visiting a Charles Schwab & Co. brokerage office in downtown Los Angeles.

The stock market’s sterling performance this year has benefited Main Street as well as Wall Street. The values of many stock mutual funds, a favorite of individual investors and pension-fund managers alike, are up 20% or more this year, padding retirement programs such as employee 401(k) accounts.

After a dismal showing last year, stock and bond prices have surged higher in 1995 because of several favorable economic trends. Inflation is relatively low, corporate earnings are rising solidly and the economy is expanding, albeit at a much slower pace than last year.

Earlier this month, the Federal Reserve cut short-term interest rates for the first time in nearly three years to help the economy extend its growth. Greenspan, in testimony Wednesday before the House Banking Committee, expressed guarded optimism that the economy is doing just that.

Times staff writer Rebecca Mowbray contributed to this story.

* DISORDERLY TRADING: Heavy volume again overburdened Nasdaq’s computers. D1.

* RELATED STORIES: D1, D3