FINANCIAL MARKETS : Stocks Plunge on Rate Rise; Dow Off 35.77 : Market Overview

The stock market plummeted on rising long-term interest rates Wednesday, after two sessions that ended in record high prices.

* Investors continued to dump long-term Treasury bonds, with yields driven up sharply for a fourth consecutive session.

* The dollar slid against most other currencies as investors took profits following the greenback’s recent rise.

Stocks

The market’s plunge, in a crush of trading, was exacerbated by computer-triggered selling.

The Dow Jones industrial average shed 35.77 points to close at 3,661.87. Big Board volume was 342.11 million shares, up from the previous day’s 304.78 million.

Stocks opened the day in negative territory, building on the broader market’s increasing weakness, despite several recent record highs in the Dow average.

As the session wore on, traders turned their attention to the bond market, where prices were falling and interest rates were rising. With less than two hours to go, stocks plunged as a wave of computer-generated “sell” orders dumped baskets of equities.

At one point, the Dow was off about 53 points, and this triggered the exchange’s “uptick rule,” which restricts program-directed trading. That seemed to relieve some of the selling pressure and stocks were lifted from their worst levels.

In the broader market, declining issues outnumbered advancing ones about 3 to 1 on the New York Stock Exchange.

Analysts said the blue-chip market had been showing signs of weakness, despite its recent record-setting run, and the downturn was not surprising. They said the Dow’s rise Tuesday to a record close of 3,697.64 was helped by a sharp gain in the shares of International Business Machines, while the broad market was lower.

Analysts said that recent reports showing the economy gaining strength also raised concern about a surge in interest rates.

They also blamed the selloff on electric utility stocks, which declined sharply across the board. Utility issues are interest-rate sensitive, and investors often look to them for a sign of the overall market’s direction.

Among the market highlights:

* Key electric utility stocks plunged a point or more, though movements of 1/8 point or 1/4 point in either direction are the norm. Among them, American Electric Power fell 1 to 36 7/8, Consolidated Edison fell 1 3/8 to 32 5/8, Detroit Edison was off 1 at 31 3/4, Niagara Mohawk Power slipped 1 1/4 to 20 1/8 and Philadelphia Electric lost 1 1/8 to 29 1/4.

* In bank stocks, Citicorp shed 1 1/8 to 35 3/8; Bankers Trust fell 2 1/4 to 77 1/8.

Cyclical stocks, which are sensitive to swings in the economy, also performed poorly. Among them were forest product stocks such as International Paper, which lost 1 1/8 to 61 1/2, and Westvaco, which fell 1 3/8 at 32 1/2. Oil stocks also slipped. Chevron was down 3/8 to 94 3/4; Mobil fell 5/8 to 78 3/8.

* Shares of semiconductor companies fell on concern that demand for memory chips may have fallen in October. Micron Technology was down 5 at 40 3/4; Texas Instruments lost 5 1/2 to 60 1/8 and Intel fell 1 7/8 to 60 7/8.

* One of the few strong sectors was drugs, which rallied after brokerage Goldman Sachs upgraded its rating of the group. Bristol Myers advanced 7/8 to 59 3/4; Eli Lilly rose one to 55 3/8; Merck gained 1 1/8 to 32 7/8.

Stocks also ended lower in overseas trading. In Frankfurt, the 30-share DAX average closed 11.22 points off at 2,084.36. Tokyo’s 225-share Nikkei average fell 57.00 points to 19,381.24. London’s Financial Times 100-share average ended 1.8 points off at 3,162.3.

Credit

In the bond market, the yield on the Treasury key long bond jumped to 6.10% from 6.06% on Tuesday, forcing the bond’s price down 21/32 point, or $6.56 per $1,000 in face value. It was the long bond’s eighth price decline in 10 sessions. Bond yields and prices move in opposite directions.

One illustration of the market’s recent gloom: Investors in fixed-income securities sold bonds on news that analysts said was decidedly mixed for the credit markets.

For example, auto makers reported a slower than expected annual rate of sales of domestically made vehicles in October.

Ordinarily, such news might have encouraged bond buying, since slow economic growth tends to reduce inflation pressures. Higher inflation can hurt the value of fixed-income securities such as bonds.

Instead, investors seemed to focus on the Federal Reserve’s moderately positive assessment of economic conditions across the country. The Fed noted particular strength in consumer spending.

On the foreign exchange markets, currencies fluctuated within narrow ranges most of the day, as investors prepared for the release of October unemployment figures, due Friday. The drop in the stock market prompted some dollar selling.

Market Roundup, D6