NEW YORK -- Stocks plunged yesterday on reports that the Federal Reserve's refusal to cut interest rates caused low demand for the Treasury's sale of $9.75 billion in seven-year notes.
The Dow Jones industrial average was fractionally higher until the Treasury announced results of the auction of seven-year notes. The index slumped, on a burst of computer-driven sell orders, after the auction results were revealed.
The Dow Jones industrials fell 25.94 points, to 3,152.25, with International Paper, International Business Machines, Coca-Cola and Philip Morris accounting for much of the decline. Meanwhile, the 30-year bond fell 3/4 point. The closing yield was 7.48 percent, up 13 basis points in the past two days.
"Bonds were hit, and we were, too," said William Lord, equity trader at Lehman Brothers. "The market waffles every time the slightest bad news is released."
Declining common stocks outnumbered advancing issues by about 8 to 5 on the New York Stock Exchange. Trading was more active than expected given that yesterday was Yom Kippur. About 186 million shares traded on the Big Board.
Stocks backed off on reports that the Treasury's sale of seven-year notes left major bond dealers holding securities they didn't want.
The average yield was 6.01 percent, above expectations for a 6 percent average yield. The high yield was 6.05 percent, against expectations for a 6.01 percent high yield, and 20 percent of the bids at the high yield were filled.
Such a wide yield disparity suggests that dealers were stuck owning notes they did not intend to buy.
The Federal Reserve "didn't help matters" when it refrained from cutting interest rates, said Kevin Flanagan, money market economist at Dean Witter Reynolds.