NEW YORK — Fear of higher interest rates caused Wall Street to suffer one of its biggest drops in history Monday when the Dow Jones index of 30 industrials fell 36.14 to 1,773.90.
It was the seventh-largest point drop since the industrial average was put into its present form 58 years ago and the largest since July 7, when it fell 61.87, the biggest decline ever.
The average fell 2% on Monday, compared to 3.25% on July 7 and 12.8% on Oct. 28, 1929. Of the 1,492 issues traded on the New York Stock Exchange, 1,027 declined in value Monday and 226 rose.
Concern Over Treasury Auction
Big Board volume was 127.99 million shares, compared to Friday's 131.96 million.
"Bond futures were down the limit," said Michael Metz of Oppenheimer & Co. "And the cash market was also very weak. The dollar was under extreme pressure. The (Japanese) yen and the (West German) . . . mark were up almost 2% in the relation to the dollar."
Metz said there is concern that the U.S. Treasury's coming quarterly auction of Treasury obligations will not be well received abroad because of the declining rate of the dollar. That, in turn, could put upward pressure on interest rates.
"The fear now is the refunding package. Foreigners are becoming less willing to buy these instruments, to finance American debt," Metz said. "What they make in interest they lose in appreciation, and interest rates could be forced up to attract these foreign buyers. That is a fear."
Some analysts cited other likely reasons for the market's sharp decline.
Albert E. Goldman, vice president and director of technical market analysis for A. G. Edwards & Sons, a St. Louis brokerage house, said so-called program selling by arbitrageurs "was unrelenting all day. They leaned on the market . . . and the buyers just disappeared. Institutional buyers just pulled to the sidelines."
He said the bond market was weak because of the anticipated auction but added that "we have concern before every auction."
Program trading refers to computer programmed sales and purchases of stock by major securities firms. The transactions involve both stocks and stock-index futures and are triggered by price disparities between the two markets. They have little to do with the overall outlook for the market and the economy.
But Monte Gordon, a vice president of Dreyfus Corp., an investment company, said the market drop was caused by a depressed economy. "There is a certain amount of discomfort over why the economy is consistently sluggish," he said, "considering the litany of things which have been done to stimulate it.
"We have had three discount rate cuts and should have another soon. We have had low inflation. There has been an accommodating stance on the part of the Federal Reserve and generally low interest rates. All these things would point to stimulation, but people are questioning that. They are more aware that the energy sector, the agriculture sector and the industrials are in a recession and that this 25% of the economy is dragging along the rest of the economy."
The market decline makes this a good time to buy stock, some observers maintained.
The Dow Jones industrial average is "in the 1,700s, and that should be viewed as a buying opportunity," said Robert Prechter, publisher of the Elliott Wave Theorist, a stock market forecasting newsletter in Gainesville, Ga. "The support of 1,700 is rock solid. I was negative at 1,909. But between 1,710 and 1,770 is a zone where stocks are once again attractive."
All of the other Dow Jones indexes were off as well Monday. The index for 20 transportation companies dropped 6.87 to 713.63, the 15 utilities declined 4.44 to 203.01 and the 65 stocks dropped 12.22 to 685.14.
On the American Stock Exchange, prices also closed lower on moderate volume. The Amex market-value index was off 2.63 to 263.68 on volume of 8.9 million shares, compared to 9.6 million shares traded on Friday.
Among the actively traded NYSE blue-chip stocks in Monday's selloff were General Motors, which fell 2 3/4 points to 69; International Business Machines, which dropped 1 3/4 to 132 3/8; Ford Motors, which declined 1 3/8 to 55 5/8, and American Telephone & Telegraph, which dropped 1 to 23.
There were some stocks that strongly bucked the downward trend. Safeway Stores, which said Sunday that it had agreed to a buyout by Kohlberg Kravis Roberts & Co. for $69 a share, countering Dart Group's $64-a-share offer, jumped 4 5/8 to 66 1/2. Hammermill Paper rose 1 to 55 after a 5-point gain Friday; an investor group has announced a $52-a-share tender offer for the company.
E.F. Hutton Rises
E. F. Hutton rose 2 to 37 on takeover speculation. The company's president declined to comment.
Standard & Poor's index of 400 industrials fell 4.81 to 260.51, and S&P's 500-stock composite index was down 4.21 at 236.01.
In the secondary market for Treasury securities, prices of short-term governments fell about 6/32 point, intermediate maturities ranged between a decline of 3/32 and a rise of 7/32 and long-term issues were down as much as 2 points, according to the investment firm of Salomon Bros.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.83 to 116.31. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 7.46 to 1,218.69.
In corporate trading, industrials fell 2 points and utilities fell 7/8 point in quiet trading.