STOCKS : Dow Falls 8.66 After News of Shrinking GNP

Stocks closed lower Friday after first-quarter gross national product numbers triggered fears that there will be no quick economic recovery.

The pace of trading was the slowest in nearly three weeks.

The Dow Jones average of 30 industrials dropped 8.66 to 2,912.38, finishing the week with a loss of 53.21 points.

Big Board board volume fell to a light 153.86 million shares, down from Thursday’s 166.94 million and the lightest total since a 138.59-million-share day April 8.

In the broader marker, there were 859 declining issues, 672 rising issues and 516 issues unchanged in nationwide trading of New York Stock Exchange-listed stocks.

The gross national product--the total output of goods and services--shrunk at a 2.8% annual rate in the first quarter. That followed a 1.6% drop in the last quarter of 1990. It was the first time in nine years that the GNP had fallen two consecutive quarters.

Also unsettling was a rise in inflation, which quashed hopes of any interest rate cut by the Federal Reserve.

The Dow’s blue chips shed 19 points before a reversal in bond prices helped shares recoup some ground.

“Until we settle this inflation question, it’s hard for the market to rally significantly,” said Robert Caputo of Swiss Bank Corp. “The market’s in between a consolidation and a leadership change. Eventually, I think the news is going to turn more positive.”

While first-quarter corporate results have not been the disasters that some had predicted, several high-profile stumbles, including Compaq Computer, have made investors uneasy.

“People were saying they thought that they could breathe easier now that the first quarter is over. That’s changed. Now they’re saying they’d better wait to see what the second quarter is like,” said Steve Poling of AMEV Advisors Inc.

But others say the market’s decline is a natural reaction to a jump to a record high of 3,004.46 on April 17.

“This correction is healthy because some of the stocks, like the big drugs and food stocks, got too far ahead of themselves,” said analyst Gene Seagle of Gruntal & Co.

Among the market highlights:

* Compaq Computer, which lost 9 3/8 Thursday after disappointing first-quarter results and a downbeat second-quarter outlook, fell 1 5/8 to 50 7/8. Smith Barney repeated an “avoid” rating on the computer maker.

* Pacificare’s stock climbed 5 1/2 to 32 1/2 after the company said it expects second-quarter earnings to be above analysts’ expectations.

* Walt Disney, which fell nearly 3 points early in the day on disappointing results, recouped to end with a loss of 1/8 at 115.

* Shares of Weyerhaeuser gained 1 1/4 to 26 5/8. Traders said Oppenheimer & Co. repeated a “buy” rating on the stock.

* Health Risk shares dropped 3 1/4 to 10 after the company reported third-quarter earnings below Wall Street’s expectations.

Foreign markets were mixed. Japan’s 225-share Nikkei average closed up 84.42 points at 26,123.68, and Germany’s 30-share DAX average rose 3.36 points to 1,623.81. In London, the Financial Times average of 100 leading shares closed down 10.8 points at 2,471,3, its lowest level of the month.

Credit

In a volatile session, U.S. Treasury bond prices closed higher after a wave of technical selling and a second look at the gross national product report.

The Treasury’s bellwether 30-year bond rose 3/8 point, or $3.75 per $1,000 in face amount. Its yield, which moves in the opposite direction from price, dropped to 8.20% from 8.24% Thursday.

Bond prices fell in the morning after release of the GNP report.

Bonds normally would rally on such bearish economic news, with the expectation that the Federal Reserve would loosen credit to stimulate business activity. But bond prices skidded because the report showed that inflation was rising at an annual rate of 5.1% in the first quarter, up from 4.7% in last year’s fourth quarter.

The Fed is less likely to lower interest rates if it perceives inflation as a threat.

Marilyn Cohen, investment broker for California-based Capital Insight Inc., described the selling after the inflation report as “horrendous.”

Later in the afternoon, the bond market rebounded on a wave of technical selling, as participants tried to square their positions in advance of the weekend.

Hugh A. Johnson, senior vice president of First Albany Corp., said traders also began to consider that the GNP report included figures for the first three months of 1991 but no predictions based on activity in the current quarter.

He said bonds rallied as traders realized that the economy is still weak and shows only faint signs of recovery.

The federal funds rate, the interest on overnight loans between banks, was quoted at 5.675%, down from Thursday’s 6%.

Currency

The dollar inched up on hopes that the U.S. recession has hit bottom and will give way to a rebound in the current quarter.

The market shrugged off the GNP drop, which it had expected.

Traders were encouraged when Commerce Undersecretary Michael Darby said the recession should hit bottom and give way to a recovery in the April-to-June quarter.

In New York trading, the dollar closed at 1.7510 German marks, up from Thursday’s 1.7490. It ended at 138.10 Japanese yen, up from 137.80.

Other late dollar rates in New York, compared to Thursday’s rates, included: 1.4766 Swiss francs, up from 1.4670; 5.9110 French francs, up from 5.8995; 1,294.00 Italian lire, up from 1,291.00, and 1.1523 Canadian dollars, down from 1.1532.

Commodities

Pork belly futures prices rose sharply as big speculative players positioned themselves for what could be the beginning of a seasonal market rally.

On other commodity markets, livestock futures were mostly higher, most oil futures rose, grains and soybeans were mixed and precious metals were mixed.

Frozen pork belly futures settled 0.28 cent to the permitted daily limit of 2 cents higher on the Chicago Mercantile Exchange, with the contract for delivery in May up 1.57 cents at 65.67 cents a pound.

The spurt brought the belly market’s cumulative gain to 4.27 cents since Monday, when talk of a large South Korean purchase of U.S. bellies began circulating.

The Korean National Livestock Cooperatives Federation confirmed the rumors Wednesday, saying it bought 4.4 million pounds of frozen bellies from the Monfort division of ConAgra Inc.

Some traders believe that the Koreans bought the bellies on behalf of the Soviet Union, which would suggest that further large purchases are possible. Pork bellies are the part of a hog from which bacon is made.

Light sweet crude oil finished 9 to 13 cents higher on the New York Mercantile Exchange, with June at $21.28 a barrel.

Precious metals were little changed on New York’s Commodity Exchange.

Gold futures ended 10 to 40 cents lower, with April at $353.90 an ounce.

Market Roundup, D6