NEW YORK — The stock market, wavering through an up-and-down week, fell sharply Wednesday after a surprisingly large decline in May leading economic indicators raised fears that a sharp slowdown in the economy could lead to lower corporate profits.
The Dow Jones index of 30 industrials, which had been down 20.49 on Monday and up 14.99 on Tuesday, dropped 21.63 to 2,504.74.
Declining issues outnumbered advances by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 485 up, 997 down and 488 unchanged.
Volume on the floor of the Big Board came to 158.47 million shares, down from 171.09 million in the previous session.
"Investors may have become somewhat concerned that the U.S. economy has slowed too much, which may hurt corporate earnings," said Charles Jensen, market analyst for MKI Securities.
The Commerce Department reported that the index of leading economic indicators fell 1.2% in May, for a drop that exceeded most advance estimates on Wall Street.
That provided new evidence that the pace of the economy was slowing significantly, fulfilling a goal of the Federal Reserve.
But the response to the news in the credit markets was unenthusiastic. Rates on government securities actually rose as traders cashed in some of the recent gains in bond prices.
In addition, brokers said, the leading indicators were not warmly welcomed by traders who have been worrying that a slowing economy might be setting the stage for a recession and a slump in corporate profits.
Talk has also increased lately that earnings at many multinational companies are likely to suffer before long as a higher dollar cuts into the income they realize in foreign markets.
Losers among the blue chips included USX, down 1 at 35 1/2; American Telephone & Telegraph, down 1/4 at 36 1/8; Eastman Kodak, down 1/8 at 49; International Business Machines, down 1/2 at 113 7/8, and General Electric, down 3/8 at 53 3/8.
Oil service stocks extended their recent gains on hopes for a revival of exploration and production demand. Halliburton rose 1 5/8 to 34, Schlumberger was up 1 to 40 7/8 and Baker Hughes gained 1 to 20.
Technology issues were broadly lower, by contrast, in the over-the-counter market. MCI Communications lost 1 1/2 to 37 1/2; Apple Computer slipped 7/8 to 41 3/4; Intel dropped 1 1/8 to 30 1/2, and Micron Technology fell 1 3/8 to 20.
Large blocks of 10,000 or more shares traded on the NYSE totaled 3,582, compared to Tuesday's 3,722.
The credit market's powerful rally ran out of energy as traders sold to collect profits.
Much of the selling involved long-term government securities, which pushed the yield on the market's bellwether 30-year Treasury bond up to 8.13% from 8.07% late Tuesday.
The price of the key bond, which moves in the opposite direction to yield, tumbled 5/8 point, or $6.25 for every $1,000 in face value. The drop erased more than half of Tuesday's gain.
Mitchell Held, an economist with Smith Barney, Harris Upham & Co., pinned the selloff on desires to cash in some winnings after the market's strong performance lately.
The end of the second quarter on Friday provides an added incentive to take profits because money managers typically adjust holdings prior to preparing quarterly reports for clients.
Carl Steen, a market analyst at Drexel Burnham Lambert Inc., said there was no fundamental economic reason for the retreat. The Commerce Department's report on the index of leading economic indicators predictably provided evidence of slower growth.
Bond traders have been bidding up prices on rising optimism that weak business activity would induce the Federal Reserve Board to pursue a more generous credit policy and drive down interest rates.
Held of Smith Barney believes that the Fed might loosen its credit grip soon, leading to a decline in interest rates.
Some analysts, however, doubt that the central bank is apt to relax its stance significantly because economic growth has maintained sufficient momentum to keep inflation rolling along at an unacceptably fast pace.
"The market has been thinking the Fed will ease rates to stimulate the economy but we don't think the economy is as weak as all that," Steen said. "We think there's still strength out there."
The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 9.563%, up from 9.438% late Tuesday.
The dollar ended higher against key foreign currencies in thin, lifeless trading despite reports of central bank intervention.
Gold prices fell. Republic National Bank of New York quoted an ounce of gold at $374.40 as of 4 p.m. EDT, down 85 cents from Tuesday's late bid.
Currency dealers said the dollar got a lift mainly at the expense of the Japanese yen, following increased speculation that Prime Minister Sousuke Uno of Japan might be forced to resign because of a sex scandal.