Dow, Ahead for Most of Session, Dips 3.38 as Selloff Snuffs Market Rally

NEW YORK — Stock prices abruptly fell late Thursday in heavy trading, hurt by investors who used fears of a stronger U.S. dollar and renewed airline fare wars as excuses to cash profits from the mighty 1987 rally.

“The market can’t keep going up forever,” said Robert B. Ritter, senior vice president and technical analyst at L. F. Rothschild, Unterberg, Towbin in New York. “At any point here, you can expect some sort of correction.”

The Dow Jones average of 30 industrial stocks, higher for most of the day, dropped in the last half hour of trading and finished with a loss of 3.38 points to 2,160.01. It was the first time since the wild gyrations of last Friday that the barometer has ended lower.

Most broader measurements of stock activity also fell, but the American Stock Exchange’s market-value index eked out a slight gain for its third-straight record high, closing at 299.80, up 0.31.

Declining stocks outran gainers on the New York Stock Exchange by about an eight to seven margin.

Stock analysts said the market’s advances were repeatedly eroded by profit-takers growing nervous about how far the rally can go. News that the faltering dollar apparently had stabilized against key currencies served as an excuse to sell stocks that have benefited from the currency’s decline.

Others said the selloff was caused partly by Texas Air’s announcement that its Continental and Eastern airline subsidiaries were sharply lowering discount fares.

Airline stocks dropped sharply in reaction and triggered profit taking among other transportation-related stocks.

Wall Street’s pullback, only the third this month, was accepted with equanimity by most investment strategists.

“One thing experience teaches you is that no tree grows to the sky,” said Brian Fernandez, head of research and institutional sales at the New York office of Japan’s Nomura Securities International. “It would have to break the established pattern of centuries to continue to go on like this.”

Hildegarde Zagorski, analyst at the New York investment firm of Prudential Bache Securities, said the market’s retreat did not signal an end to the rally but reflected how unsettled investors are about its spectacular rise.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 239.62 million shares.

Large blocks of 10,000 or more shares traded on the NYSE totaled 3,999, compared to 3,799.

In the credit markets, bond prices finished narrowly mixed Thursday and short-term interest rates edged higher.

Analysts said investors were looking ahead to the coming $29-billion quarterly refinancing of the government’s huge debt.

They said the dollar’s modest rise on foreign exchange markets encouraged the view that there would be good demand for the new issues of notes and bonds.

In the corporate bond market, industrials and utilities rose point in light-to-moderate trading.

The Treasury’s bellwether 30-year bond inched up by nearly 1/8 point, or $1.25 per $1,000 face amount, while its yield slipped to 7.43% from 7.44% late Wednesday.

Among tax-exempt municipal issues, general obligation bonds were unchanged and revenue bonds rose point in moderate dealings.

Yields on three-month Treasury bills rose 7 basis points to 5.52%. Six-month bills rose 8 basis points to 5.48% and 1-year bills were up 7 basis points at 5.52%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 6.188%, down from 6.5% on Wednesday.