Stocks Sink on Profit Taking; Dow Drops 12 : Strength in Bond Market Continues as Yields Fall

NEW YORK — The stock market retreated Monday, yielding to sellers who pushed the Dow Jones industrial average back below the 1,700 level that it surmounted for the first time last week.

The drop, which came despite another day of extraordinary strength in the bond market, was attributed to profit taking rather than any significant change in the news background.

The Dow Jones average of 30 industrials dropped 12.39 to 1,696.67.

Volume on the New York Stock Exchange slowed to 142.67 million shares from 191.66 million on Friday.

Interest Rates Decline

Analysts said many traders apparently concluded that the upsurge in stock prices over the past few weeks had crested, at least for the moment. The Dow Jones industrial average jumped 138 points in February alone.

Otherwise, brokers said, there were no apparent developments in the economic news to disturb the optimism that has pervaded Wall Street lately.

Interest rates continued to decline in the credit markets. The Treasury’s 30-year bond, which has led the rally, jumped more than $20 for each $1,000 in face amount to yield 8.11%, down from 8.28% late Friday. Yields on shorter maturities also tumbled.

A weekend report by a trade group of purchasing executives said the economy turned in a good showing in February. However, an index calculated by the National Assn. of Purchasing Management declined somewhat from its January reading.

IBM Climbs

White Consolidated Industries jumped 10 to 48 3/4. A Swedish company, AB Electrolux, made a $45-a-share takeover offer for White Consolidated.

International Business Machines rose 3/8 to 151, steadying after a sell-off late last week when IBM said its revenue for the first quarter would be hurt by recent price cuts for some of its products.

But other computer and technology stocks were generally weak. Digital Equipment fell 4 to 164 1/8, Sperry 1 1/8 to 50 7/8, Burroughs 1 to 66 5/8, Data General 1 to 39 3/4 and Hewlett-Packard 7/8 to 43.

American Express was up 3/8 at 66 1/8 after trading above 67 early in the session. General Motors denied reports that it was considering a bid for the company. GM shares slipped to 77 3/4.

Western Airlines led the active list, up 1/2 at 10 1/2 on turnover of more than 3 million shares. Traders’ attention has focused on the stock as a candidate for the possible next development in a recent flurry of airline merger activity.

Large blocks of 10,000 or more shares traded on the NYSE totaled 2,544, compared to 3,964 on Friday.

In the overall tally on the Big Board, declining issues slightly outnumbered advances. The exchange’s composite common stock index dropped 0.65 to 130.09.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 179.23 million shares.

Standard & Poor’s index of 400 industrials lost 1.74 to 248.33, and S&P;’s 500-stock composite index was down 1.50 at 225.42.

The Wilshire index of 5,000 equities closed at 2,326.061, down 9.877.

The NASDAQ composite index for the over-the-counter market gained 0.25 to 359.78.

At the American Stock Exchange, the market value index closed at 256.72, down 0.63.

The bond rally pushed long-term interest rates down to levels not seen since 1978. Prices of corporate and municipal issues moved higher.

Views on Discount Rates

Hopes for brisk buying by foreign investors led to the credit market’s latest surge, analysts said. Those hopes have been fueled by recurring reports, as yet unconfirmed, that Japan and West Germany may soon reduce their official discount rates--their central banks’ interest fee on loans to banks.

In the secondary market for Treasury securities, prices of short-term governments rose from 3/8 point to 21/32 point, intermediate maturities jumped 7/8 point to 1 25/32 points and long-term issues bounded forward by 2 5/32 points, according to the investment firm of Salomon Bros.

In corporate trading, industrials gained one point and utilities rose 1 points in quiet activity.

Among tax-exempt municipal bonds, general obligations rose 5/8 point and revenue bonds rose 1/2 point. Trading was moderate.

Yields on three-month Treasury bills dropped seven basis points to 6.95%. Six-month bills fell 12 basis points to 6.89%, while one-year bills slid 12 basis points to 6.83%.

The federal funds rate--the interest on overnight loans between banks--traded at 7.75%, compared to 8% late Friday.