Bonds Narrowly Mixed Despite Plunge in Stocks : Anticipated Cut by Fed in Discount Rate Affects Two Markets Differently

NEW YORK — Despite the dramatic across-the-board drop in stock prices, the bond market closed mixed Monday. The Treasury Department’s key 30-year bond gained about $2 for each $1,000 in face amount, and its yield fell to 7.16% from 7.18% on Thursday. Shorter-term issues fell or remained unchanged.

The Dow Jones average of 30 industrials fell 61.87 to 1,839.00, exceeding its previous record point loss of 45.75 points on June 9 of this year.

Four times previously since the start of 1986, the Dow has posted single-day losses of 2% or more. On each of those occasions, the market snapped back quickly to move on to new highs. But analysts said the damage, on first inspection, looked a little more severe this time.

Far greater percentage declines have occurred in the past, when the average was at lower levels. Monday’s drop of 3.25% was barely one-fourth the size of the 12.9% loss that the average suffered on Oct. 28, 1929.

Traders in Uneasy Mood

But that was small consolation to traders counting up their losses after a decline that extended into all major stock groups.

Analysts said stock traders returned from the long July 4 weekend in an uneasy mood over evidence of continuing weakness in the economy.

A monthly survey conducted by the National Assn. of Purchasing Management found declines last month in production, employment and new orders. The trade group’s composite index recorded its sharpest drop in nearly 2 1/2 years.

For much of the time lately, brokers have been talking of sluggish business activity as a plus for the market, in the sense that it seems to increase the likelihood of another cut in the Federal Reserve’s discount rate.

But by Monday, observers said concern was mounting that a discount-rate cut had already been so widely forecast that the prospect had been fully taken into account by the stock market. However, analysts said the bond market was buoyed by the intensifying optimism over the possible cut in the rate by the Fed. Bond prices and interest rates move in opposite directions.

Volume on the New York Stock Exchange came to 138.23 million shares, against 108.26 million last Thursday. In the daily tally on the Big Board, declining issues outnumbered advances by nearly six to one. Large blocks of 10,000 or more shares traded on the NYSE totaled 2,347, compared to 1,988 on Thursday.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 162.24 million shares.

Standard & Poor’s index of 400 industrials fell 9.57 to 271.51, and S&P;’s 500-stock composite index was down 7.74 at 244.05.

Profit-taking was evident in some stocks that have been strong lately, including Federated Department Stores, down 3 3/4 at 83 3/4; ITT Corp., down 3 1/8 at 55; Coca-Cola, down 2 1/2 at 41, and Philip Morris, down 5 at 71.

Radice Corp. was the day’s biggest percentage loser among NYSE issues, down 2 5/8 at 10. The company said it had an unexpected loss for the fiscal year ended June 30.

THE DOW’S BIGGEST LOSSES

Monday’s 61.87-point drop represents about 3.25% of the average’s value, which is far less than some drops in earlier years when the average was much lower. Here are the 10 previous biggest daily losses for the industrial average:

Point % of drop Date DJ value 45.75 June 9, 1986 2.4% 41.91 April 30, 1986 2.3% 39.10 Jan. 8, 1986 2.5% 38.33 Oct. 28, 1929 12.8% 36.33 Oct. 25, 1982 3.5% 35.68 March 21, 1986 2.0% 34.95 May 28, 1962 5.7% 33.60 May 15, 1986 1.9% 31.89 Sept. 26, 1955 6.5% 30.57 Oct. 29, 1929 11.7%

Source: Associated Press