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Spokane, Washington  Est. May 19, 1883

Dow Dips On Overconfidence Fears

Associated Press

The Dow Jones industrial average plunged more than 150 points Friday as interest rates soared again in a bond market suddenly stricken with inflation jitters.

The Dow briefly sank below the 8,000-mark early Friday afternoon with a 212-point slide but quickly recovered enough ground to close at 8,031.22, down 156.78 for the day, a drop of 1.9 percent. It was the ninth-largest one-day point drop on record and brought the Dow’s declines to 228 points since reaching a record 8,259.31 on Wednesday. For the week, the average of 30 blue-chip stocks was down 162.82 points.

Broader stock indicators, which also closed at record highs Wednesday, were besieged by profit takers from the outset as bond market interest rates continued a weeklong ascent from last week’s 17-month lows.

With no distinct culprits to blame in the way of actual news, analysts pointed to nagging fears that the market has been rallying too enthusiastically in recent months, even for what seemed an incredibly ideal economic setting.

Interest rates began rising last Friday after the release of some economic data suggesting that the economic pace has accelerated, threatening to aggravate inflationary pressures.

Those worries worsened this week amid signs of strong consumer activity during July. Complicating matters on Friday was a worrisome business outlook from Coca-Cola and a big drop in the value of the dollar against major world currencies, something which can make U.S. investments less enticing to foreigners.

Even with recent developments, however, analysts emphasized that little has changed over the past week other than perceptions, which they said had probably grown too starry-eyed.

“Nothing has happened,” said A. Marshall Acuff Jr., market strategist at Smith Barney. “I don’t see any problem with inflation at the moment. It’s really a shift in perceptions. We’re seeing a shift from bullish expectations about inflation and interest rates to one that’s more uncertain and cautious.”

Federal Reserve officials are scheduled to meet Aug. 19 to decide whether interest rates should be raised to slow the economy, easing inflationary pressures, but potentially hurting company profits.

As bond prices fell Friday, the yield on the 30-year Treasury - a key determinant of borrowing costs - jumped as high as 6.66 percent before settling at about 6.63 percent, the highest finish since early July.

Last week, the long-term bond’s yield fell to 6.29 percent, its lowest level since February 1996, as bond traders cheered the federal budget agreement. The sudden retreat from those lows was all the excuse many investors need to sell stocks and secure some profits, analysts said.

“The Dow rose more than 1,800 points (since mid-April) without a meaningful pause, so you’ve got a lot of portfolio managers with hair triggers,” said Richard A. Dickson, a technical analyst at Scott & Stringfellow in Richmond, Va.

Overseas, Tokyo’s Nikkei stock average rose 0.7 percent, Frankfurt’s DAX index fell 1.4 percent and London’s FT-SE 100 fell 1.1 percent.