Dow Falls 20.62; Interest Rate Rise Cited

NEW YORK — The stock market gave ground Tuesday, running into resistance from sellers after its sharp rally during the past week.

The Dow Jones index of 30 industrials, up 118.77 over the past five sessions, dropped 20.62 to 2,054.59.

Declining issues outnumbered advances by about 4 to 3 on the New York Stock Exchange.

Stocks were pressured by a rise in credit market interest rates and a slight decline in the dollar. But the selling was not seen as a setback to growing hope that a summer rally is under way, traders said.

“One thing encouraging is that volume started to dry up as soon as stocks began to fall sharply,” one trader said.

Pressure on Bonds

Interest rates rose in the bond market Tuesday. Prices of long-term government bonds fell about $5 for each $1,000 in face value.

Analysts said the pressure on bonds stemmed largely from inflation worries that have increased with rising commodity prices of late.

Stocks bowed to selling pressure just after the slightly higher opening. At about 2:30 p.m. EDT, however, bonds slipped further after failing to stage a rally on slight easing in commodity price gains.

Traders said the weakness in the bond market caused several futures indexes to decline. Investors, arbitraging between the cash price and future price of baskets of stocks, then took advantage of the cheaper index price to sell stocks and buy futures, sending the Dow to its lowest level of the day, down 25.

Brokers said uncertainties about inflation and interest rate prospects helped to discourage traders from chasing after stocks with the popular indexes near the high end of the trading range in which they have fluctuated for the past several months.

The government is due to report Friday on the producer price index for May.

Some Buck Trend

Some computer and semiconductor issues bucked the overall down trend. Digital Equipment rose 1 to 109 3/8, Compaq Computer gained 1 1/2 to 57, Hewlett-Packard added 3/4 to 57 5/8 and Motorola edged up to 50. But International Business Machines dropped 5/8 to 113 3/4.

Other losers among the blue chips included General Motors, down 1 1/2 at 75 1/2; Philip Morris, down 3/4 at 83 7/8; McDonald’s, down 1 at 44 3/8; Du Pont, down 1 5/8 at 84 1/2, and Eastman Kodak, down 5/8 at 43 5/8.

Bay Financial chalked up the day’s biggest percentage gain among NYSE issues, rising 5 1/2 to 17 1/2. Country & New Town Properties, a Netherlands-based concern controlled by a British company, said it was willing to negotiate a $16-a-share bid to acquire the roughly 58% of Bay Financial it doesn’t already own.

Ferro Corp., subject of takeover conjecture, gained 2 to 39.

Sun Electric climbed 7/8 to 15 7/8. An investor group said it was interested in holding takeover talks, but Sun said it wants to remain independent.

Egghead Inc. traded at 18 1/2 on heavy volume in the over-the-counter market after an initial public offering of 3.6 million shares of the computer software retailer’s stock at $17.

Big Board volume totaled 168.71 million shares, against 152.64 million on Monday. Nationwide consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 199.94 million shares.

Indexes Lower

The Wilshire index of 5,000 equities closed at 2,641.569, down 10.947.

The NYSE’s composite index of all its listed common stocks lost 0.87 to 149.68.

Standard & Poor’s industrial index fell 2.03 to 306.54, and S&P;’s 500-stock composite index was down 1.88 at 265.17.

The NASDAQ composite index slipped 0.02 to 379.32 and the American Stock Exchange market-value index closed at 302.61, up 0.67.

Prices on the Tokyo Stock Exchange fell slightly at the end of trading after a record high closing the previous day, and the U.S. dollar weakened against the Japanese yen.

The Nikkei 225-share average declined 28.92 to finish at 27,967.32.

In London, the Financial Times 100-share index fell 12.5 to close at 1,820.2.