Market Retreats in Profit Taking; Dow Drops 5.64

NEW YORK â€”  The stock market pulled back slightly Friday, running into sporadic bouts of profit taking after reaching record highs in the two preceding sessions.

The Dow Jones average of 30 industrials dropped 5.64 to 1,876.71, trimming its gain for the week to 53.42 points.

Volume on the New York Stock Exchange reached 151.20 million shares, up from 135.67 million Thursday.

Many Wall Streeters were impressed by the market’s strength late Thursday, which enabled the Dow Jones industrial average to edge upward to a new closing high despite a very weak bond market. But analysts said traders were still uncertain over how to read recent signs of increasing economic growth.

An index of business activity calculated by the National Assn. of Purchasing Management rose sharply in May, the group reported. That news came just after the Commerce Department said the index of leading economic indicators climbed 1.5% in April.

Those numbers served as positive portents for corporate earnings in the months ahead. At the same time, they weren’t welcomed in the bond market.

Fears that faster growth might intensify credit demand and revive inflation touched off a sharp rise in open-market interest rates Thursday. Rates moved up again Friday, pushing the benchmark 30-year Treasury bond, which sank $25 for each $1,000 in face amount on Thursday, down another $7.50 on Friday. Its yield rose to 7.77% from 7.70% late Thursday.

The Dow Jones industrial average finished May with a net gain of 93.73 points, in the process going against a historical calendar pattern. From 1965 through 1985, according to the Stock Trader’s Almanac, the average posted 16 losses and only five gains in May.

Losers Edge Gainers

In the daily tally on the Big Board, about eight issues declined in price for every seven that gained ground.

Large blocks of 10,000 or more shares traded on the NYSE totaled 2,614, compared to 2,409 on Thursday.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 176.79 million shares.

Bond prices suffered slight to moderate losses Friday as the market digested further signs that the U.S. economy might be picking up steam.

Government issues lost ground early following the Commerce Department’s report that the U.S. merchandise trade deficit for April was $12.1 billion, down from $14.5 billion in March.

Analysts said an improvement in the country’s balance will help foster faster overall economic growth, which could lead to greater credit demands and higher interest rates. Bond prices and interest rates move inversely.

And, although Treasury issues recouped the early losses, prices later retreated broadly in relatively light trading.

Harold Nathan, chief financial economist for Wells Fargo & Co. in San Francisco, said Friday’s declines were a follow-through of the negative market sentiment on Thursday, when indications of a robust economy and rapid growth in the nation’s money supply caused bond prices to tumble.

In the secondary market for Treasury bonds, prices of short-term governments dipped in the range of 1/32 to 1/16 point and intermediate maturities fell 5/32 point. The 20-year bond was down 15/16 point, according to the investment firm of Salomon Bros. The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

In corporate trading, industrials were down 1/2 point in moderate activity and utilities off point in light dealings. Among tax-exempt municipal bonds, revenue bonds dropped point in light activity and general obligations fell 1/2 point in moderate trading.

Yields on three-month Treasury bills were unchanged at 6.32%. A basis point is one-hundredth of a percentage point. Six-month bills rose one basis point to 6.42%. One-year bills up two basis points at 6.48%.

The federal funds rate, the interest on overnight loans between banks, traded at 6.875%, unchanged from late Thursday.