Fed Rate Threat Still Reverberates

Big-name technology shares started to recover Friday, but the broad market fell for the third straight day amid fears the Federal Reserve is set to muzzle inflation and investor enthusiasm with higher interest rates.

The Dow Jones industrial average fell 47.33 to 6,877.74, giving the blue-chip barometer a three-session decline of about 160 points and a drop of 53.88 points for the week.

Broader measures also fell, but the Nasdaq composite index, hard-hit by two weeks of profit-taking in the technology sector, was cushioned by some strength in the depressed shares of computer-industry bellwethers.

Stocks have been retreating since Wednesday, when Fed chairman Alan Greenspan issued a stern warning that the market’s stunning advance poses an inflationary risk. Greenspan, in a report to Congress, cautioned that the central bank may increase interest rates even before a measurable increase in inflation becomes evident.

“The Fed, without question, was the greatest influence on this week’s price movement,” said Russ Labrasca, senior vice president at Principal Financial Securities of Dallas. “They’ve set a nice stage, so that if down the line they raise rates, they can say they gave us some significant clues.”

Friday’s economic readings offered a mixed bag on inflation.

In another indication that the nation’s economic activity may be too brisk to keep inflationary pressures in check, the National Association of Realtors reported that sales of existing single-family homes unexpectedly rose 2.1 percent in January.

But a survey of Midwestern factory executives suggested that manufacturing activity hasn’t accelerated as much as expected in that key region during February. And in a separate report, the Commerce Department said the U.S. economy grew at a 3.9 percent annual rate in the final three months of 1996, slower than government economists first estimated.

Fed officials and economists will likely pay close attention to Monday’s report on a national survey of factory executives, the first broad reading on February’s business activity.

Bond prices steadied after a two-day pullback, leaving the yield on the 30-year Treasury - a barometer for long-term borrowing costs - unchanged at 6.80 percent. Inflation can hurt bonds by making their fixed payoff less attractive, while higher interest rates can hurt stocks by raising corporate borrowing costs and slowing consumer spending.

Declining issues outnumbered advancers by a 4-to-3 margin on the New York Stock Exchange, where volume totaled 508.27 million shares.

The Standard & Poor’s 500-stock list fell 4.25 to 790.82, the NYSE composite index fell 2.38 to 415.51; and the American Stock Exchange composite index fell 0.93 to 594.24.

The Nasdaq composite index fell 3.66 to 1,309.00 despite a strong day for leading technology issues.

Overseas, Tokyo’s Nikkei stock average fell 2.4 percent, Frankfurt’s DAX index fell 0.5 percent and London’s FT-SE 100 fell 0.7 percent.