Gambling and casino-related stocks continued to dominate a declining stock market yesterday, as the Dow Jones average of 30 industrial stocks finished at 823.02, down 4.68 after a brief morning rally. There was growing concern that the feverish speculation in gambling stocks has gone too far and that the bubble could soon burst.

"This thing is feeding on itself and has gone way beyond the realm of rational speculation," said Newton of Zinder, vice president and analyst at E.F. Hutton. "The danger some people see is that when this thing bursts it could affect other sectors of the market."

"This is indicative of a very dangerous market," said Bernard Fortgan, a trader with Smith Barney, Harris Upham. "Speculators want action and they are pouring more and more money into a handful of stocks. They are hoping to buy now and sell at a profit to someone, who is a greater foo, later."

Overall, declines led advances by a slim margin among New York Stock Exchange-listed issues. Volume on the Big Board was 28.53 million shares compared with 27.16 million on Thursday and composite volume of NYSE issues on all exchanges was 32.1 million compared with 30.4 million the previous day.

The Dow average was ahead more than 2 points in the first hour of trading but turned lower at noon. For the week, the blue-chip indicator was down 19.95. The NYSE index yesterday declined 0.17 to 53.90 and the Standard & Poor's 500-stock index gave up to 0.39 to 95.85.

Interest in the gambling-related stocks has been sparked by the successful opening of the first casino in Atlantic City less than a month ago by Resorts International. The speculation has been based not only on the potential other companies have for opening casinos in Atlantic City, but on the belief that legalized gambling may well spread to other states, fueling a nationwide boom for the gaming industry. The evidence for this speculation is slim at the moment.

But virtually any stock with a potential gambling payoff was on the most active list on either the New York or American stock exchanges yesterday, most showing handsome gains.

Washington-based Allegheny Airlines was the second-most active issue on the NYSE, increasing 3/8 to 10 7/8, after a jump of 2 1/4 points the day before. The company said the action in its stock appeared to be related to the fact that it is currently the only certificated air carrier with rights to serve Atlantic City.

"The next thing you know, we'll be seeing activity in Greyhound because it provides bus service to Atlantic City," one wag commented.

Even the local utility, Atlantic City Electric, gained 1 to 22 yesterday.

Other stocks in the "casino group" that advanced included Ramada Inns, Del. E. Webb, Howard Johnson, Playboy Enterprises, Metro-Goldwyn-Mayer, Caesar's World, and the greatest star of them all, Resorts International class "A".

Yesterday, Resorts closed at 83 7/8 on the Amex, up 7 7/8 for the day, and more than 30 points for the week. Before it opened the Atlantic City casino, Resorts "A" had been trading at around 36 - already benefitting from advance anticipation. So the gain in the last month has approached 50 points.A few years ago it was trading at just over $1 a share.

Gary B. Helms, research chief at Loeb Rhoades Hornblower, said there has been nothing like the current activity since the go-go period of the late 1960s. "It is indicative of speculative fever at this highest peak, and is causing consternation among a lot of investors," said Helms.

"These stocks clearly have a lot of risk built into them," he added. Helms recommended that individual investors "not touch them with a 10-foot pole at this point." At the same time he noted that "nobody has lost any money in these stocks so car."

That's not quite right. A number of investors have been betting that the stocks would go down in price and have taken so-called short positions. That means they have sold borrowed stock, hoping to later buy the stock to cover their initial positions at a lower price. But since the sahres have continued to rise, the shorts have been forced to buy stock to cover their short positions to minimize their losses. This short covering in turn added to demand for the shares, and helped to fuel the sharp rises.

On the Amex, declines topped advances by 331 to 301 as volume increased to 4.8 million from 3.5 million Thursday. But the Amex picked up 0.09 to 147.27.

Over-the-counter prices also increased slightly, with NASDAQ composite index up 0.06 to 120.74. OTC declines led advances, 443 to 378, and volume rose to 12 million from 10.4 million the previous day.