Market Drifts Lower as Dow Index Declines 3

NEW YORK —  Stock prices drifted lower today amid persistent concern over the recent upswing in interest rates.

The Dow Jones average of 30 industrials dropped 3.20 to 1,275.84.

Declines outpaced advances by about five to three on the New York Stock Exchange.

Big Board volume came to 93.68 million shares, against 104.02 million in the previous session.

The NYSE’s composite index fell 0.50 to 104.01.

At the American Stock Exchange, the market-value index was down 2.07 at 226.10.

Open-market interest rates have been rising since Federal Reserve Chairman Paul A. Volcker told a Senate committee that the central bank had ended its relaxation of monetary policy, which has resulted in falling rates for the final three months of 1984 and the first month in 1985.

Volcker said that did not mean that the central bank had shifted to tightening credit. But speculation spread on Wall Street that the Fed’s policy might well move in that direction in the future.

On Thursday, the government revised upward its estimate of economic growth in the fourth quarter to 4.9% from its earlier estimate of 3.9%.

The Fed also reported Thursday that the nation’s basic money supply rose $2.2-billion in the week ended Feb. 11, leaving the key money measure about $4 billion above its upper growth target.

Analysts said they don’t expect the Fed to tighten right away, but they said the money supply has been growing so rapidly over the past three months that it may have to restrain money growth eventually.

News that the government had raised its figure for economic growth for the fourth quarter of last year to 4.9% from an earlier estimate of 3.9% also added to traders worries.

The stronger the economy, many analysts reason, the more wary the Fed is likely to be about a possible revival of inflationary pressures.

Bond prices also continued their week-long slide in early trading amid concern that the interest rate trend is higher.

In the secondary market for Treasury bonds, prices of short-term governments fell 1/32 point, intermediate maturities were off point and long-term issues were down as much as 15/32 point, according to the investment firm of Salomon Bros. Inc.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

In corporate trading, industrials and utilities were down 3/8 point in moderate trading. Among tax-exempt municipal bonds, general obligations were off point and revenue bonds were down 3/8 point.

Yields on three-month Treasury bills fell 2 basis points to 8.38%. A basis point is one-hundredth of a percentage point. Six-month bills rose 3 basis points to 8.53% and one-year bills were up 1 basis point at 8.66%.

Yields on 30-year Treasury bonds rose to 11.64% from 11.58% late Thursday. Yields on such issues were 11.34% late Friday last week.

The federal funds rate, the interest on overnight loans between banks, traded at 8.5%, down from 8.688% late Thursday.