NEW YORK -- The Dow Jones industrial average fell 50.79 points yesterday, to a four-month low of 3,254.10, as the Treasury bond market skidded in response to the U.S. dollar's fall to a record low against the German mark.
The dollar fell two pfennigs against the mark and declined against other currencies despite supportive intervention by North American and European central banks.
Analysts said that although the catalyst for the stock-market loss was the dollar's slide, the driving factor was a plunge in bonds. The Treasury bond had been up half a point before the dollar began tumbling at 11:50 a.m. It skidded to a 3/4 -point loss by late afternoon.
Bond yields rose to 7.375 percent from a low of 7.261 percent, threatening the scenario of falling long-term interest rates that has been the stock market's chief underpinning.
Index-arbitrage program selling at midday was a force behind yesterday's s decline.
Although cash-market liquidations became evident after sell programs ran their course, the Dow fell to new lows and failed to rise much above 200 million shares, suggesting that institutions were not major participants in the decline.
Yesterday's expirations of August index futures and options were largely uneventful. The program selling at midday was related to hefty discounts in September Standard & Poor's 500 futures.
Hugh Johnson, a strategist at First Albany, said the market's loss was all the more grievous for two reasons. First, the dollar-related decline wiped out any euphoria lingering after President Bush's speech to the Republican National Convention Thursday. Mr. Bush had stressed shrinking the federal debt and cutting taxes across-the-board in 1993.
The Dow initially rose 18 points, to 3,323, in reaction to the speech, as well as to an acceleration of the Japanese stock-market rally that began Wednesday. But the industrial index fell back to neutral by late morning and had no chance to rally again because of the dollar and bond-market slides after midday.
Second, Mr. Johnson said, the break in the dollar occurred despite repeated central-bank intervention. The ineffectiveness of intervention suggested that the dollar may be in danger of declining even further.
At the close, the Dow stood at 3,254.10, down 50.79, its lowest level since April 9, when the index finished at 3,224.95. Declining issues outpaced advancing ones about 3-to-2 on moderately active volume.
"It was a domino-type effect we saw today," said Chris Willox at BT Brokerage. "The dollar broke, bonds fell and stocks followed the bond market in rapid succession."
NB John Murphy, who runs JJM Technical Advisors in Oradell, N.J.,
noted that prices opened higher, then fell sharply and closed at the session low on rising volume.
"That's a 'downside reversal' day, and it's not a pretty picture," Mr. Murphy said.
Among Dow components, Alcoa tumbled 3 1/8 , to 64 3/4 ; Exxon lost 2 1/8 , to 63 1/4 ; and full-point losses were sustained by General Electric, Eastman Kodak, Chevron, Merck, and Minnesota Mining.
Goodyear Tire slumped 1 3/8 , to 65 1/4 , in step with B.F. Goodrich, which sank 3 1/8 , to 40 1/2 , after Goldman Sachs lowered its earnings estimates.
Bristol-Myers Squibb fell 1 1/8 , to 65 3/4 , on the heels of its 2 1/8 loss Thursday after a Smith Barney downgrade.