Dow Plunges 43.92 as Rate Hikes Abound : Week’s Loss Totals 79.28, Traders Show Concern for Economy

The barrage of interest-rate increases drove stock prices sharply lower today, closing out the market’s worst week in more than six months.

The Dow Jones average of 30 industrials tumbled 43.92 points to 2,245.54, extending its loss for the week to 79.28 points.

That ranked as the average’s biggest weekly decline since it fell 81.61 last Aug. 8 though 12.

Declining issues outnumbered gainers by about 7 to 2 on the New York Stock Exchange.

Big Board volume totaled 160.68 million shares, against 150.37 million in the previous session.

The NYSE’s composite index lost 2.37 to 161.72.

After the close on Thursday, Chase Manhattan Bank of New York kicked off the second round of prime rate increases this month, raising the benchmark rate on variable loans from 11% to 11.5%.

As more banks joined in that move today, the Federal Reserve increased its discount rate from 6.5% to 7%.

Open-market interest rates on securities like bonds and Treasury bills also climbed today.

Although the increase in rates did not come as a surprise, given recent government reports suggesting that inflation is heating up, it increased investors’ worries about the business and economic outlook, analysts said.

Bonds Fall Sharply

Bond prices fell sharply in early trading today while short-term rates headed higher.

The Treasury’s benchmark 30-year bond slumped 17/32 point, or $5.30 per $1,000 face amount. Its yield, which moves inversely to its price, rose to 9.19% from 9.14% late Thursday, the highest level since September.

Rates on short-term government bonds were especially under pressure.

“The short end got pretty well crushed right after the news” that the Fed raised its key lending rate from 6.5% to 7%, the highest level since April, 1986, said Steven A. Wood, an economist with BankAmerica Capital Markets Group in San Francisco.

“It was just confirmation that the Fed really means business in terms of inflation,” he said.

Bond trading was active after the announcement; such moves drive short-term interest rates higher as some banks must borrow to meet reserve requirements.

In the secondary market for Treasury bonds, prices of short-term governments fell 5/32 point, intermediate maturities fell from 5/16 to 7/16 point and long-term issues were down from 5/32 to 17/32 point, according to the Telerate Inc. financial information service.

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

The Shearson Lehman Hutton daily Treasury bond index, which measures price movements on outstanding Treasury issues with maturities of a year or longer, fell 2.67 to 1,117.51.

In corporate trading, industrials were down. Moody’s investment grade corporate bond index, which measures price movements on 80 corporate bonds with maturities of five years or longer, fell 0.41 to 295.95.

Yields on three-month Treasury bills jumped to 8.95% as the discount rose 6 basis points to 8.65%. Yields on six-month bills rose to 9.27% as the discount jumped 12 basis points to 8.75%. Yields on one-year bills climbed to 9.53% as the discount rose 6 basis points to 8.79%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.

The federal funds rate, the interest on overnight loans between banks, was quoted at 9 3/4%, up from 9 11/16% late Thursday.