Bond and Stock Markets Sell Off as Oil Prices Make a Comeback

NEW YORK —  Short-term interest rates tumbled in credit markets early in the day Friday, amid hopes that lackluster labor market figures may persuade monetary authorities to pursue more generous credit policies. But prices of long-term government bonds deteriorated and their yields bounced up as oil prices moved higher.

The rebound in oil prices was also seen as a driving force in a stock market decline that saw the Dow Jones industrial average close out its worst week ever, losing 82.50 points for the five sessions. Analysts also blamed program selling of stocks to cash in on relatively low stock-index futures premiums for Friday’s 27.18-point drop in the Dow.

The morning rally in the credit markets was attributed to a Labor Department report showing that the nation’s unemployment rate took a smaller-than-expected decline in March to 7.2%, down from February’s 7.3%.

Analysts said the report implied that the economy hasn’t cast off its lethargy. A welcome byproduct of the poor performance could be a Federal Reserve Board move to ease credit conditions by nudging interest rates lower, they said.

Henry Kaufman, the influential chief economist of Salomon Bros., said the economic news enhanced the chances that the Fed will feed more money into the system to stimulate growth.

He said the Fed may put off cutting its discount rate until after foreign central banks have undertaken similar moves, as it did in early March.

“Still, recent events do point to a further lowering of money rates and an improved chance of a near-term reduction of the discount rate,” Kaufman said in his weekly comments on credit.

The discount rate is the interest rate that central banks charge on loans to commercial banks. The U.S. discount rate, now at 7%, is the only interest rate that the Fed directly controls, but movements in it usually influence interest charges throughout the economy.

Interest rates on three-month Treasury bills slid 16 basis points to 6.21%. Six-month bills dropped 16 basis points to 6.20%, while one-year bills fell 12 basis points to 6.18%.

In corporate trading, industrials fell 1/2 point in busy trading and utilities fell 3/4 point in lighter dealings.

The sharp drop in the Dow Jones index for the week exceeded the previous record weekly decline of 59.08 points set Oct. 16-20, 1978.

But in percentage terms, the average’s 4.53% loss for the week was nowhere near a record.

Friday’s volume on the New York Stock Exchange came to 147.27 million shares, against 148.23 million on Thursday.

Friday’s point-plus losers among the blue chips included Merck, down 6 at 164 1/2; International Paper, down 2 at 58 3/4; McDonald’s, down 2 at 92; General Electric, down 1 3/4 at 73 3/4, and International Business Machines, down 1 3/8 at 148.

American Express fell 2 3/8 to 64 1/2 following word that losses in the tin market are expected to reduce the company’s earnings for the first quarter.

Airline issues slumped as investors scaled down their expectations of the benefits the industry might receive from cheaper fuel. UAL dropped 1 5/8 to 53 3/8, AMR 1 to 53 3/4 and Delta 3/4 to 43.

In the daily tally on the Big Board, advancing issues outnumbered declines by nearly three to one. The exchange’s composite index dropped 2.12 to 132.29.

Standard & Poor’s index of 400 industrials fell 3.92 to 252.66, and S&P;’s 500-stock composite index was down 3.78 at 228.69.

The NASDAQ composite index for the over-the-counter market dropped 2.28 to 372.23.

At the American Stock Exchange, the market value index closed at 265.08, down 1.53.