Strong signals that interest rates may have peaked and the economy is in recession today triggered the biggest one-day rally in bond market history. The same news stopped an early stock market rally dead in its tracks.

The Dow Jones average of 30 industrials, up more than 8 points in early trading, closed with a 12.11 loss at 771.25.

New York Stock Exchange volume picked up to 39.73 million share from 26.67 million Tuesday.

After its strong start, the stock market yielded to accumulating evidence of a business slowdown, including General Motors' announcement of 12,000 layoffs and word that housing starts fell 21.8 percent last month.

The bond market, by contrast, staged a sharp rally early in the day and finished only slightly off its peak. Bond prices moved inversely with interest rates.

Loses of nearly a point or more on the active list included International Business Machines, down 7/8 at 51 1/8; Exxon, off 7/8 at 56 1/2; and Mobile, down 1 7/8 at 67. GM was off 5/8 at 43 1/8.

Airlines were also broadly lower, with Delta off 1 3/4 at 1 3/4, Trans World down 7/8 at 10 1/4, Braniff down 7/8 at 5 7/8; United Air Lines off 7/8 at 15 1/4 and American Airlines 7/8 at 15 1/4.

Among issues sensitive to interest-rate expectations, American Telephone & Telegraph rose 5/8 to 50 5/8, Federal National Mortgage 7/8 to 13 1/2, and Texas Utilities 1/4 to 17 1/2, Chase Manhattan gained 1/8 to 39 5/8.

Dow Jones' average of 15 utilities rose 1.12 to 106.77.

The daily tally on the NYSE showed eight losers for every seven stocks that gained grund, and the exchange's composite index dropped 59 to 57.71.

Standard & Poor's index of 400 industrials was down 1.60 at 11.69, S&P's 500-stock composite index gave up 1.09 in 101.54.

At the American Stock Exchange, the market-value index tumbled 5.36 to 238.20. The NASDAQ composite index for the over-the-counter market closed at 135.76 down .63.

Yields on U.S. Treasury bills, offered in the morning at 12.27 percent, were down to 11.67 at the close. The government 11 7/8s of 83 closed at 101 1/8, up about 1 1/2 points on the day.

But the long-term government market showed the biggest gains. The bellwether 11 3/4 2010, for example, opened at 102 1/2, hit a high of 108 1/4 and closed at 107.24, up almost six points on the day. Long-term corporates closed up about five points on the day but traded higher.

The rally was capped by the pricing late yesterday afternoon of $250 million of AAA-rated Pennsylvania Bell Telephone debentures due April 15, 2020, at 11 7/8 at par. This is in contrast to the last AAA telephone subsidiary issue sold April 8, which carried at 13 percent coupon and was offered at a discount price of 99 1/2.