Wall Street Toughs Out a Roller-Coaster Day : Blue Chips Nose-Dive but Regain Ground; Bond Market Gyrates

Blue chip stocks closed solidly higher Wednesday, as bargain hunters’ concerted buying of economically sensitive shares pulled the market out of a plunge of more than 50 points tied to concern about rising interest rates.

In the government bond market, yields gyrated in unusually volatile trading, retreating from an early spike as investors emerged to grab bonds at lower prices.

The Dow Jones industrial average rose 22.51 points to close at 3,831.74, after bouncing back from the 50-point loss in the first hour of trading. The drop triggered a New York Stock Exchange halt on index-linked trading.

But in the broader market, declining issues still outnumbered advancers by 1,424 to 771. About 361.13 million shares were traded on the Big Board, the largest turnover since 376 million shares changed hands Feb. 4.

Among other major market indicators, the NYSE’s composite index fell 0.34 to 257.47. The Standard & Poor’s 500 index inched up 0.37 to close at 464.81, and the Nasdaq of mostly smaller stocks fell 5.76 to 782.88. On the American Stock Exchange, the market value index fell 3.64 to 466.32.

Stocks fell early in the session in sympathy with bonds, which dropped sharply after a government report on personal income and spending was initially judged to portend higher inflation.

The news sparked an early response in the bond market, sending the yield on the 30-year Treasury bond up to 6.85%--its highest level since June--from 6.78% at Tuesday’s close. It later retreated to close at 6.77%. The bond’s price, which moves in the opposite direction, finished up 1/8 point, or $1.25 per $1,000 in face value.

The Commerce Department said personal income fell 0.3% in January after rising 0.6% in December. Consumer spending rose 0.5%, duplicating its December performance. Many analysts had predicted that both measures would rise 0.3%.

Stocks also buckled early in the session under heavy sell programs, as investors bailed out in response to steep losses in stock markets overseas. Tokyo’s 225-share Nikkei average dropped 471.85 to 19,744.77 after a U.S. newspaper report that the United States was poised to impose trade sanctions on Japan sent stocks sharply lower just before the close. In Frankfurt, the 30-share DAX average ended down 46.72 points at 2,020.33, while London’s Financial Times 100-share average fell 20.5 points to close at 3,248.1. Shares also closed lower in Paris and Zurich.

Mexico City’s Bolsa index ended 48.53 points higher at 2,562.68, a gain of 1.93%.

The Dow industrials sank 50.65 points to 3,756.04 in the first 15 minutes of trading, and the New York Stock Exchange invoked the so-called collar limiting sell programs until shortly before noon.

“There were lots of sell programs early in the day,” said Richard Meyer, head of equity trading at Ladenburg, Thalmann & Co. “When that basically dried up and bonds started to turn up, guys started to put bids back into the marketplace. This is more of a technical bounce.”

Adding to the selling fervor were reports that Lehman Bros. analyst Elaine Garzarelli, a staunch bull, had gone bearish. Once Garzarelli confirmed that she remained positive on stocks, that helped the recovery as well, Meyer said.

Among the market highlights:

* Bankers Trust fell 2 1/4 to 78 1/2 on market rumors that the bank was hit by heavy trading losses.

A source familiar with the situation called the rumors untrue, and a bank spokesman said operations so far this year have been profitable.

* Citicorp fell 3/4 to 39 5/8.

* Among blue chip cyclical stocks, Alcoa rose 2 to 76 1/2; GM gained 2 3/8 to 60 1/2; Caterpillar advanced 3 1/8 to 112.

Auto stocks rose with many economically sensitive stocks. General Motors rose 2 3/8 to 60 1/2; Chrysler gained 1 1/8 to 57 1/2; Ford rose 1 3/4 to 64.

* AST Research fell 5 1/4 to 23 1/2 after dropping 2 3/4 on Tuesday. Analysts said the computer maker’s sales growth rate will slow in its fiscal third quarter, which ends March 31.

* Apple Computer lost 5/8 to finish at 35 5/8 after the company said it will cut the price on its PowerBook notebook and sub-notebook computers.

* Paramount fell 27 7/8 to 48 1/8. Viacom completed a tender offer for a controlling stake in Paramount. Viacom Class B ended off 3/4 at 28.

* Telefonos de Mexico rose 1 to 67 1/4.

Other Markets

The dollar finished lower against most foreign currencies, but managed to recoup some losses triggered by the release of German money supply figures.

Foreign exchange traders said the dollar plummeted after Germany reported that its M3 money supply measure jumped 20.6% on an annualized basis in January compared to the average rate in the 1993 fourth quarter. The Bundesbank said the figure was distorted by special factors.

However, many investors took the number as a sign that German inflation could come roaring back.

Germany’s cautious central bank, anxious to choke off inflation, has lowered interest rates very slowly and had been expected to drop them again soon.

The dollar rose after falling below the psychologically important level of 1.700 German marks. It closed at 1.704 marks, down from 1.708.

The dollar’s fall was broken in part because of rumors that the Bundesbank might lower rates slightly as early as today to prevent financial markets from panicking, said Amy Smith, senior currency strategist at the IDEA analytic service.

The dollar also tumbled against the Japanese yen, after the New York Times said that President Clinton had decided to resume legal authority, through a mechanism known as Super 301, to slap trade sanctions on Tokyo.

The dollar dipped to 103.10 yen before recovering. It rose after U.S. Trade Representative Mickey Kantor said the Clinton Administration was not trying to boost the yen to retaliate for the breakdown of trade talks. The greenback closed at at 104.15 yen, down from 104.60 yen Tuesday.

Meanwhile, gold fell on the New York Comex to $377.80 an ounce, down 50 cents from Tuesday. Silver for current delivery closed at $5.276 an ounce, up 0.3 cent.