* Blue chip stocks plummeted as sellers overran the market after troubling earnings reports and a slump in bond prices. The Dow Jones average closed 29.07 points lower at 3,226.74.
Treasury bond prices fell sharply after a poor auction of new five-year notes and rising anxiety about Washington's response to the economic slump. The yield on the Treasury's 30-year bond rose to 7.72% from 7.62% Wednesday.
The stock market's setback all but wiped out Wednesday's 32-point gain.
Declining issues outnumbered advances 7 to 6 on the New York Stock Exchange.
Big Board volume rose to 234.58 million shares from Wednesday's 228.14 million.
"Once again, we've got a case of discernible buyer burnout at this high level," said Robert Stovall, president of Stovall/21st Advisers.
Analysts said the market was also hounded by profit taking after its record-setting gains the last two months.
However, secondary stocks managed to extend their advance, with the NASDAQ index rising 2.18 points to 622.86.
Poor earnings from companies that included American President and Data General generated a flurry of selling.
"As we get toward the tail end of the earnings season, where more disappointments are likely to occur, that could give investors pause," said Ron Hill, investment strategist at Brown Bros. Harriman.
Analysts said a weak bond market after the poor five-year note auction also hurt stocks.
Further bond market losses "could be another kick in the pants" for stocks, MMS International analyst Jim Schroeder said.
* Unisys topped the NYSE volume list. Nearly 14 million shares traded after it reported its first quarterly profit in two years. The stock gained 1 3/8 to 7 1/8.
* Centel jumped 9 1/8 to 46 1/8. The telephone company said it is considering ways to enhance stockholder value, including selling itself.
* American President dropped 7 3/4 to 34 3/4 after the shipping concern reported fourth-quarter results below analysts' expectations.
* Data General slumped 4 to 12 after the company reported fiscal first-quarter earnings that were below Wall Street estimates.
* Willamette jumped 4 1/8 to 69 5/8, and James River gained 5/8 to 22 1/2. Dean Witter upgraded its ratings on both paper companies.
* Medical Marketing Group rose 4 3/4 to 31 1/2 after it said second-quarter profit rose to 9 cents a share from 4 cents in the year-ago period.
* American Telephone & Telegraph fell 7/8 to 39 1/2. It posted lower fourth-quarter and full-year 1991 earnings.
Overseas, stocks made small gains in London. The 100-share Financial Times average rose 3.3 points to 2,525.3.
In Frankfurt, the 30-share DAX average fell 10.53 points to 1,669.57.
Tokyo stocks were up a second day in volatile trading. The 225-share Nikkei average closed up 46.60 points at 21,580.72.
Bond prices took a sharp dive after the Treasury auctioned $9.27 billion worth of five-year notes. The average yield was 6.28%.
Maria Ramirez, president of Ramirez Capital Consultants Inc., said many bond market participants are nervous about a large supply of new issues scheduled to come onto the market.
On Feb. 5, the Treasury is expected to announce its quarterly refunding of the government deficit. Economists estimate that $39 billion in new government securities will be auctioned this quarter.
"The dealer community does not want to hold onto positions when there's so much supply coming," Ramirez said.
Traders are also concerned about President Bush's upcoming budget proposal as well as competing measures from Senate Democrats. Both sides have endorsed the concept of a tax cut, but the severity of the reduction and details of financing remain unclear.
The federal funds rate, the interest on overnight loans between banks, fell to 3.875% from 4.50% Wednesday.
The dollar ended higher against key currencies, largely on anxiety about a weekend meeting in New York among the finance ministers of the Group of Seven nations.
Foreign exchange traders said the dollar's value rose out of concern that the financial emissaries from Britain, Canada, France, Germany, Italy, Japan and the United States will fail to address the question of what their currencies should be worth relative to each other.
In New York, the dollar rose to 1.595 German marks from 1.590 Wednesday. It climbed to 123.80 Japanese yen from 123.38. The British pound fell to $1.7850 from $1.8055.
Gold and silver futures prices tumbled on New York's Commodity Exchange in what was believed to be recession-related selling.
On other commodity markets, energy futures slipped, grains and soybeans were mixed, meat and livestock gained and orange juice futures prices gained.
Gold for delivery in February settled $3.40 lower at $354.90 an ounce; March silver fell 6.8 cents to $4.225 an ounce.
Investors often buy precious metals to protect themselves against rising consumer prices. In a recession, when inflation is not a worry, demand sinks.
Light, sweet crude oil for March delivery fell 22 cents to $18.72 a barrel on the New York Mercantile Exchange as investors awaited word out of this weekend's OPEC meeting on whether member countries plan to curtail their outputs. Prices also fell on reports that Iraq will meet earlier than planned next month with United Nations negotiators to discuss oil sales outside of the U.N.-imposed embargo.
Market Roundup, D6