Stock prices fell for the second day in a row and bond prices, which had rallied slightly Thursday, declined sharply today.

Investors reacted with dismay both to the governments report that wholesale prices surged in January and to the threat that interest rates will soon rise again.

The Dow Jones industrial average closed down 8.79 at 884.98, although at one point in the afternoon, the average had been down by more than 13 points. The average fell 10.07 on Thursday.

Most of today's decline was centered in the same type of stocks that have propelled the stock market into a sustained rally from the first of the year until Thursday: energy, metals, and mining.

Bond prices, which had been sinking steadily since the first of the year, dipped another 1.5 to 1.75 points today. That means for each $1,000 of face value, a bond price declined between $15 and $17.50.

The dollar, by contrast, gained against most of the major currencies in slow trading while the price of gold fell $10.50 an ounce in New York to close at $660.

Newton Zinder, chief analyst at E. F. Hutton, said that because stock prices had been climbing steadily for more than five weeks, the "advance was tiring and was vulnerable to adverse news."

The Labor Departments report that wholesale, or producer, prices rose 1.6 percent in January -- the worst one-month increase in more than five years -- shocked investors. The increase was "above all, even the worst, expectations," Vinder said.

The Federal Reserve's morning announcement that it would raise the discount rate from 12 to 13 percent also upset the market, analysts said. The move had been expected, but the fed usually waits until the end of the day to make its announcements.

Similarly the threat of a higher prime rate hurt both stock and bond prices. Although Citibank announced it would keep its prime rate at 15 1/4 percent, several major banks raised the interest they charge brokers to borrow. Increases in the broker loan rate usually presage prime rate increases.

Most of the major oil company stocks fell today, although both Mobil and Texaco rose. Nearly all major mining stock declined as well.

Energy, metals and mining stocks had been rising rapidly since early January because investors felt that energy shortages, worldwide military tensions and the concomitant increase in U.S. defense spending would aid the long-run outlook for these industries.

The New York Stock Exchange composite index closed down 0.68 to 66.14, while the American Stock Exchange index was down 0.03 to 281.35. Declining stocks on the NYSE outnumbered those registering gains by 1,135 to 380.

While stock prices are down, they are still well above their levels of early January. Bond prices, meanwhile, have been declining almost without pause since the first of the year.

During the last six weeks, bond prices have lost as much as $150. Long-term Treasury bonds are now yielding investors over 12 percent, while other quality corporate and utility bond yields are above 13 percent and in some cases above 14 percent.

Since Oct. 6, when the Federal Reserve announced its new anti-inflation package, bond prices have declined between 20 and 25 percent, creating at least paper losses of $350 to $400 billion, according to one estimate.

"The slow erosion in bond prices that has been evident for several years has become a blow-off," said Bache's Kornstein.

In foreign exchange markets, the dollar closed at 1.74 West German marks, up from 1.7361 Thursday and at 1.6275 Swiss francs compared with Thursday's 1.6180. The British pound closed at $2.2955, down from $2.3155.The dollar did fall against the Japanese yen. A dollar could buy 243.1 yen today, compared with 234.35 Thursday.