Rally Fizzles; Dow Falls to 2 1/2-Month Low

NEW YORK — The Dow Jones average of 30 industrials fell to a 2 1/2-month low Friday after a brief early rally played itself out.

The decline came despite some better than expected economic news.

The Dow Jones index dropped 11.67 to 1,763.64, its lowest close since it stood at 1,758.18 on May 19. For the week, the average posted a 46.40-point loss.

Friday’s volume on the New York Stock Exchange came to 114.92 million shares, against 112.66 million on Thursday.

Before the market opened, the Labor Department reported that the civilian unemployment rate fell to 6.9% in July from 7.1% the month before. The figures also showed a healthy increase in the closely watched “non-farm payrolls” total.

Separately, the Commerce Department said the index of leading economic indicators rose 0.3% in June.

Both reports were a bit more upbeat than expected and seemed to ease fears that economic growth would remain in a slump.

However, analysts said most investors would want more and stronger evidence before they became convinced that a period of solid growth was in prospect.

“The economy has not yet shaken off its sluggishness,” Commerce Secretary Malcolm Baldrige said after the leading indicators came out.

Brokers said that some traders also apparently wanted to be out of the market before the weekend after a string of “blue Mondays” during the past couple of months. On the most recent of those, the Dow Jones industrial average fell 36.14 points on July 28.

Allied-Signal fell 1 3/8 to 39 7/8 in active trading. The company said directors had reviewed proposals to reduce the number of its outstanding shares but had taken no action on them.

Among other blue chips, International Business Machines fell 1 1/8 to 131 3/8, General Electric 1 to 72, Minnesota Mining & Manufacturing 1 1/8 to 109 7/8 and General Motors 1/2 to 67 5/8.

Cray Research Falls

Cray Research closed at 82, down 5 1/2, after a Gartner Group analyst lowered his earnings estimate for the supercomputer company.

Some pharmaceutical issues gained ground, continuing to benefit from the dollar’s declines in foreign exchange trading. Merck rose 1 3/8 to 107 7/8, Sterling Drug 3/8 to 49 3/4 and Pfizer 1/2 to 67.

Owens-Corning Fiberglas gained 3 3/8 to 64 7/8 on continuing takeover speculation.

Raychem fell 12 3/4 to 79 1/2. The company reported higher earnings for its latest fiscal quarter, but the increase fell well short of advance estimates on Wall Street.

Aaron Spelling Productions closed unchanged at 14. Earlier, Drexel Burnham Lambert reported that Aaron Spelling Productions’ initial public offering of 5.5 million shares of Class A common stock was sold out.

In the overall tally on the Big Board, about five issues declined in price for every four that gained ground. The exchange’s composite index of all its listed common stocks lost 0.60 to 135.29.

Large blocks of 10,000 or more shares traded on the NYSE totaled 2,197, compared to 2,262 on Thursday.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 137.88 million shares.

Standard & Poor’s index of 400 industrials fell 1.36 to 259.02, and S&P;’s 500-stock composite index was down 1.21 at 234.91.

In the bond market, prices slipped despite the slightly stronger than expected economic statistics as traders looked ahead to next week’s $28-billion auction of Treasury notes and bonds.

In the secondary market for Treasury bonds, prices of short-term governments fell about 1/16 point, intermediate maturities fell 7/32 point and long-term issues were down 3/8 point, according to the investment firm of Salomon Bros.

In corporate trading, industrials and utilities fell point in moderate trading.

Among tax-exempt municipal bonds, general obligations and revenue bonds were down point. Trading was light.

Yields on three-month Treasury bills were up 1 basis point at 5.76%. Six-month bills rose 1 basis point to 5.77%. One-year bills were unchanged at 5.79%.

Yields on 30-year Treasury bonds rose to 7.45% from 7.43% late Thursday.

The federal funds rate, the interest on overnight loans between banks, traded at 6.25%, down from 6.375% late Thursday.