Dow Loses 38.11 on Discount Rate Increase
The stock market plunged yesterday while other markets reacted cautiously and somewhat skeptically to the half-point increase in the discount rate.</br></br>The Dow Jones industrial average tumbled 38.11 points in slow trading to close at 2561.38, giving it a 77.97-point decline for the week and leaving it 161 points below the high of 2722.42 set 10 days ago. Analysts have said stock prices have been depressed on fears that the weakening dollar made a new surge of inflation more likely.</br></br>Stock prices initially were higher after the morning announcement that the Federal Reserve had increased the discount rate to 6 percent from 5.5 percent. But they began falling as it became apparent that the increase was not enough to significantly bolster the dollar and bond markets, as some analysts had hoped. More than 20 points of the Dow's decline came in the final hour of trading.</br></br>The dollar rose slightly in New York, but currency traders speculated that it soon would resume its recent decline. Bond prices also reacted tepidly. Prices of the closely watched 30-year Treasury bond fell about $2.50 per $1,000 value, following declines of more than $30 since Tuesday. Yields on the issues rose slightly, to 9.46 percent from 9.44 percent Thursday. Concerns about the declining value of the dollar had sent bond yields sharply higher in the first part of the week.</br></br>"It seems to me that the discount rate announcement on balance hurt the dollar and it hurt the bond market, and that's perverse to me, because the discount rate announcement was supposed to help the dollar and to a lesser degree help the bond market," said Robert Brusca, chief economist at Nikko Securities Inc. in New York.