Inflation Bear Bites Dow Again

The Dow Jones industrial average tumbled nearly 150 points on Friday and fell into negative territory for the year as the stock market resumed its downward spiral amid more worrisome inflation signs.

The Dow fell 148.36 to 6,391.69, its third drop of more than 140 points in 11 sessions. The blue-chip average, which just a month ago was sporting a gain of nearly 10 percent on the year, is now down almost 1 percent for 1997.

The broad market also posted stiff losses, led by technology and financial shares, after bond-market interest rates jumped to a nine-month high following Friday morning’s reports on wholesale prices and retail sales.

The plunge left many analysts doubtful as to whether the stock market’s recent correction - a term usually used to describe a drop of at least 10 percent - is as close to completion as some were hoping during the modest rebound seen earlier this week.

“It’s really not a fluke or simply a decline by the averages. It’s an extraordinarily wide, pervasive decline. It’s people wanting to reduce their exposure to equities,” said Michael Metz, chief investment strategist of Oppenheimer & Co., noting that the declining issues outnumbered advancers by a whopping 6-to-1 ratio on the New York Stock Exchange.

“We’re at a stage where the market is feeding on itself. This happened in reverse earlier in the year. People were buying solely because the market was going up,” he said.

The Labor Department reported Friday morning that a widely watched measure of wholesale prices unexpectedly jumped during March. The Commerce Department, meanwhile, reported a modest increase in retail sales for March, but nearly doubled its initial estimate of February’s consumer activity.

The reports firmed expectations the Federal Reserve, which sent the markets plunging two weeks ago by raising interest rates, will soon tighten credit even further to fight inflation.

Fed officials have repeatedly warned that the central bank will raise interest rates aggressively to slow the pace of borrowing and spending. That would help ease inflationary pressures, but could choke company profits in the process.

As bonds prices fell Friday, the yield on the Treasury’s 30-year bond - another key influence on borrowing costs - rose as high as 7.19 percent before settling at about 7.16 percent, its highest finish since July. Rising inflation can hurt bonds by making their fixed payoff less appealing.

The prospect of higher interest rates hurt banking and other financial services issues, which make more money on loans when rates are low.

The NYSE composite index fell 9.89 to 389.47, and the American Stock Exchange composite index fell 7.06 to 556.13.

Overseas, Tokyo’s Nikkei stock average rose 2.1 percent, Frankfurt’s DAX index fell 0.3 percent, and London’s FT-SE 100 fell 1 percent.