Dow Off 16.54 in Light Session as Jobless News Fans Inflation Fears

NEW YORK — A better-than-expected U.S. unemployment report surprised Wall Street on Friday and drove down stock prices as investors became convinced that the Federal Reserve will tighten credit to keep the economy from overheating.

The Dow Jones industrial index fell 16.54 points to 2,106.15. Volume on the New York Stock Exchange was a light 136.1 million shares, compared to 156.1 million Thursday, and the smallest total since a 116.75 million-share day on June 20.

Declining issues outnumbered advances by about 3 to 2 in nationwide trading of New York Stock Exchange-listed shares. Consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 158.13 million shares.

It was the third consecutive day that the Dow lost ground and gave the week a sour tone even though the key index reached a new post-crash high Tuesday. The index declined 25.43 points in the holiday-shortened week. The Dow lost 11.38 points the previous week.

Before the market opened, the Labor Department reported that the civilian unemployment rate fell three-tenths of a percentage point last month, to a 14-year low of 5.3%.

Non-farm payroll employment, a figure watched especially closely on Wall Street, increased by 346,000. That substantially exceeded advance estimates in the financial community.

While the news had many positive aspects, it also served as fuel for recent fears among investors that inflation and interest rates might rise as the economy heats up.

Rally May Not Be Over

“I don’t think there was anyone who wasn’t surprised by the (employment) numbers,” said Walter Arvin, an economist at MMS International. He said his firm was looking for an unemployment rate increase of about 5.4%.

“There’s probably more reflection now about another Fed tightening,” Arvin said.

Investors fear that as the number of people looking for work declines, companies will be forced to raise wages, setting off an upward wage-price spiral.

Still, analysts said the summer rally that has pushed the Dow higher since Memorial Day probably has some life left.

“In the last couple of days, we’ve seen what looks like a tired market. I wouldn’t classify the rally as over, but it looks like the market is taking a break,” Arvin said.

Investors were troubled by a sharp decline in bond prices, which they viewed as further evidence of inflationary pressures hitting the economy. The 30-year U.S. Treasury bond dropped about $10 for each $1,000 in face value after the employment report was made public.

Oxy Steady

Losers in the blue chip sector included General Electric, down 7/8 at 43; International Business Machines, down 1 at 126 3/8; Dow Chemical, down 1 3/4 at 87 3/4; Procter & Gamble, down 1 at 75, and Coca-Cola, down 5/8 at 36 7/8.

But Alcoa, which raised its quarterly dividend to 35 cents a share from 30 cents, gained 1 1/8 to 52 3/4.

Florida Steel jumped 3 5/8 to 47. The company said its top management was considering a leveraged buyout at a price of “mid- to high-$40s per share.”

Genrad Inc. was the biggest percentage loser among NYSE issues, down 1 7/8 at 9 5/8. The company said it expects to report earnings in the range of five to seven cents a share for the second quarter, less than some analysts had been estimating.

Occidental Petroleum was steady at 26 in active trading. The company has said it expects no change in its dividend policy resulting from the explosion this week at an oil rig that it owns in the North Sea.

Large blocks of 10,000 or more shares traded on the NYSE totaled 2,830, compared to Thursday’s 3,077.

The Wilshire index of 5,000 equities closed at 2,705.557, down 12.41 from the day before.

The NYSE’s composite index of all its listed common stocks dropped .81 to 152.81.

Standard & Poor’s industrial index fell 1.97 to 312.28, and S&P;’s 500-stock composite index was down 1.76 at 270.02.

Recoups Losses

The NASDAQ composite index for the over-the-counter market slipped 1.10 to 394.33. At the American Stock Exchange, the market value index closed at 309.02, up .07.

On the Tokyo Stock Exchange, the 225-issue Nikkei average, which declined 38.47 points Thursday, recouped its losses by advancing 188.95 points to close the week’s trading at 27,917.08.

Traders said while security houses and auto makers posted gains, the market appeared to be thrashing around in search of a new direction.

Prices on the London Stock Exchange jumped, helped by bullish news on the U.S. economy and renewed strength in the dollar.

The Financial-Times 100-share index rose 21.7 to 1,877.2.