NEW YORK — Reacting to negative reports on the dollar and the U.S. balance of trade, stocks and bonds staged a broad retreat Tuesday as the New York Stock Exchange experienced the second-largest trading volume in history.
The Dow Jones average of 30 industrial stocks fell 34.09 to close at 2,252.98, after having tumbled 51.71 on Monday.
The pain was widespread. Losers on the New York Stock Exchange outnumbered gainers by about 10 to 1, with 1,646 issues down, 163 up and 203 unchanged.
Volume on the New York Stock Exchange totaled 266.54 million shares--the heaviest since Jan. 23, when a record 302.39 million shares changed hands.
Dollar Sharply Lower Against Yen
Trading in bonds was also frenzied. Speculation that the dollar might weaken further and that the Federal Reserve might push interest rates higher forced bond prices lower. The Treasury's bellwether 30-year issue lost about $3.33 for each $1,000 in face value.
The seemingly endless plunge of the U.S. dollar took the blame for most of the travail in the stock and bond markets. The dollar closed Tuesday at 140.75 Japanese yen, sharply lower than the 142.20 yen level Monday, despite apparent efforts by the central banks of France, Switzerland, Japan and West Germany to support the dollar with purchases on foreign exchange markets.
The U.S. Commerce Department also announced that the nation's February trade deficit widened more than many analysts had expected--to $15.1 billion, from a revised January deficit of $12.3 billion. The January figure had initially been reported as $14.8 billion.
Thomas Czech, research director for the Blunt Ellis & Loewi securities firm in Milwaukee, said both the dollar and trade balance reports shook the market--"the dollar, because of the fear that its decline is not over, and trade, because of the rhetoric going back and forth with Japan.
"I don't know any other way to strengthen the dollar than to tighten interest rates," he said. "That's not good for the stock market."
Analysts also said signs of lurking inflation disturbed stock traders Tuesday. Gold, a popular haven in inflationary times, hit $451 an ounce at Republic National Bank in New York, compared to $436.75 late Monday. It was the highest price for the precious metal since Feb. 24, 1983, when gold cost $469.90 an ounce.
Despite its negative tone overall, the Dow Jones industrial average was actually on the upswing at the close, having been down more than 64 points just a half an hour earlier. But analysts pointed out that the Dow was often bolstered by some strong performers, masking broader losses in the overall market.
Texaco led the Big Board's most-active issues, closing up 1 at 29 3/4. Pennzoil lost 7/8 to 75 5/8. American Telephone & Telegraph was unchanged at 24, while General Electric fell 1 5/8 to 100 1/2.
International Business Machines was up 1/2 at 148 1/8, while Prime Computer was down at 22 1/8.
In the credit markets, government bond prices reacted sharply to the trade deficit report. The report "simply disappointed bond investors and suggested the dollar may have further to go on the down side," said William Gross, head of fixed-income investment for Pacific Investment Management Inc., of Newport Beach.
But the plunge in Treasuries attracted buyers once yields reached the 8.5% level, analysts said, prompting a sharp price rebound.
Philip Braverman, chief economist for Irving Securities Inc., said Treasury prices also were aided by reports that Fed governor Robert Heller said there was little likelihood the Fed would raise its key lending rate to support the dollar because of the fragile condition of the economy.
In the secondary market for Treasury bonds, prices of short-term governments were up as much as 3/32 point, intermediate maturities were down 1/32 point and 20-year issues were off by 5/16 point, according to Salomon Bros.
Yields on three-month Treasury bills fell 19 basis points to 5.84%. A basis point is one-hundredth of a percentage point. Six-month bills fell 1 basis point to 6.07% and one-year bills fell 11 basis points at 6.21%.
The federal funds rate, the interest on overnight deposits between banks, traded at 6.38%, down from 6.58% late Monday.
BIG BOARD'S BIGGEST DAYS The 10 most active trading days on the NYSE, including the number of shares traded, the movement up or down and the close for the Dow Jones industrial index. 1. Jan. 23, 1987--302.39 million, down 44.15 to 2,101.52 2. April, 14, 1987--266.54 million, down 34.09 to 2,252.98 3. Feb. 5, 1987--256.66 million, up 10.26 to 2,201.49 4. Jan. 15, 1987--253.12 million, up 35.72 to 2,070.73 5. Dec. 19, 1986--244.68 million, up 16.03 to 1,928.85 6. Sept. 12, 1986--240.49 million, down 34.17 to 1,758.72 7. Sept. 11, 1986--237.57 million, down 86.61 to 1,792.89 8. Aug. 3, 1984--236.57 million, up 36.00 to 1,213.34 9. March 20, 1987--234.01 million, up 33.95 to 2,333.52 10. Dec. 2, 1986--230.35 million, up 43.03 to 1,955.57