Bond yields soared and stocks tumbled Wednesday as rising commodity prices renewed concerns about inflation.
A falling dollar and comments from a Federal Reserve official added to speculation that inflation may accelerate.
The Treasury's benchmark 30-year bond yield rocketed to 7.39% from 7.30% late Tuesday. It was the highest closing yield since June 1. Its price, which moves in the opposite direction, plunged 29/32 point, or $9.06 per $1,000 in face value.
The rise in interest rates, which gave equity investors an excuse to sell and collect profits amassed recently, sent the Dow Jones average, which on Tuesday climbed past 3,800 for the first time since late March, down to 3,790.41, losing 24.42. The blue chip gauge had gained more than 31 points in the previous session.
Bond prices were narrowly higher during the morning, with investors encouraged by government data indicating economic growth may be slowing.
Bond investors tend to sell on news of strong economic expansion, which carries the threat of inflation. That erodes the value of fixed-income securities such as bonds.
The Federal Reserve said industrial production posted its 12th straight increase in May, rising a modest 0.2% on top of a revised 0.1% gain in April.
And the Commerce Department said business inventories rose 0.2% in April after falling in March for the first time in three months. The modest rebound was anticipated by most analysts.
Bond prices began tumbling, however, after grain and soybean futures prices soared on a long-range forecast for more dry heat in the Midwest. The heat threatens to irreversibly damage some crops, hurting supply.
The Commodities Research Bureau index, a gauge of daily changes in various commodities, ended at 238.61, up a healthy 3.31 points. The CRB is watched for indications of future inflation trends.
"Once you saw how commodities were doing, that just ruined everything," said Maury Harris, chief economist at PaineWebber Inc.
In particular, bond prices fell after crude oil prices leaped 91 cents to close of $19.86 a barrel, the highest crude closing price in a year. Oil prices soared due to increasing tensions concerning North Korea and an unexpected decrease in weekly U.S. supply figures.
Precious metals also moved higher with gold rising $2.60 an ounce on the New York Comex.
The bond market's rout triggered the setback in stocks.
"It seems like every time the CRB index hits a certain level, the bond market gets negative and then our market just follows suit," said Alice Sadlo, first vice president at McDonald & Co.
The selloff on inflation worries hit blue chips across the board.
"It shows you just how nervous people feel about the inflation issue," said Jack Shaughnessy, director of research at Advest.
Much of the selling on Wall Street was directed at big name stocks and smaller issues weathered the session slightly better. Losers outnumbered gainers by about 5 to 4 on the New York Stock Exchange, where Big Board volume retreated to 269.87 million shares, down from Tuesday's 288.55 million shares.
Market measures heavily weighed with NYSE issues ended with deficits. The NYSE composite index lost 0.96 to close at 254.14 and Standard & Poor's 500 stock index dropped 1.76 to 460.61.
The Nasdaq Stock Market composite index of mostly smaller stocks was almost flat at 735.84, off 0.14, while the American Stock Exchange market value index fell 0.38 to 442.27.
The dollar also weakened after interest rates soared.
Its weakness was particularly noticeable against the Swiss franc as market participants, nervous about tensions in Korea, bought the Swiss currency as a safe haven vehicle. In New York the dollar closed at 1.371 Swiss francs, down from 1.387.
The greenback also fell to 102.77 Japanese yen and 1.636 German marks, down from 102.78 yen and 1.646 yen respectively on Tuesday. Among the highlights on Wall Street:
* The downturn in blue chips spread to economically sensitive cyclical stocks such as Alcoa, which lost 1 3/8 at 74 1/2, and Du Pont, down 1/2 to 60 5/8. Consumer product maker Procter & Gamble fell 1 1/8 to 54 7/8, and IBM sank 1 1/4 to 63 5/8.
* Glaxo's American Depositary Receipts rose 1/2 to 17 3/4 on the NYSE following news that the Britain-based drug company's chairman, Paul Girolami, was retiring earlier than expected. There was speculation that after his retirement Glaxo would alter its business strategy.
* Auto stocks were among those bucking the general trend. Chrysler rose 1/4 to 50 1/8 and GM gained 3/8 to 54, although Ford finished off 1/2 to 60 5/8.
* Bear Stearns downgraded Exxon to avoid from hold, and the stock fell 1 7/8 to 57.
* Premark International, which makes Tupperware and other consumer products, gained 1 7/8 to 76 3/8 in anticipation of strong second-quarter results.
Mixed sessions for stocks overseas exerted minimal influence on Wall Street. In Tokyo, stocks gave up earlier gains and ended lower on arbitrage-linked selling coupled with slower buying by overseas investors. The Nikkei 225-share average ended off 71.01 points at 21,282.96.
London's Financial Times 100-share average ending up 6.2 points at 3,045.8. In Frankfurt, the DAX 30-share average was unchanged at 2,074.70.
Mexico City's Bolsa index fell 4.07 points to 2,296.87.
Market Roundup, D8
DAILY DIARY / June 15, 1994 Dow Jones Indstrials:
New York Volume:
269.87 million shares Interest Rates:
30-year T-bond 7.39%
1-year T-bill 5.15% DOW. 30: 3,790.41; -24.42 S&P 500: 460.61; -1.76 NYSE: 254.14; -0.96 NASDAQ: 735.84; -0.14 WILSHIRE: 4,562.278; -10.837 AMEX: 442.27; -0.38