NEW YORK, JUNE 24 -- -- A buyout offer for retailing giant Dayton Hudson Corp. that later turned out to be false shows how quickly a high-strung stock market can misfire in the rush to provide Wall Street with its most valuable commodity -- information.

While the legal penalties for purposely releasing false financial news can be stiff, regulators and other market watchers interviewed today said there are few safeguards against short-term shocks from apparently valid claims that later prove bogus.

But some Wall Streeters contended that in many cases, false information has only a marginal impact on professional investors, who already balance the risks of making split-second decisions based on snippets of information against the potential rewards of using news quickly and correctly.

"People should be exposed to everything and make their own judgments as to what is real and what is valid," said one Wall Street arbitrageur, who asked not to be identified. "I think it's a valid argument that whoever bought the {Dayton Hudson} stock, based on whatever reading they had about that announcement, was making a judgment" on the validity of the news.

Tuesday's report by Dow Jones News Service that a Cincinnati investment firm was making a $6.8 billion offer for Dayton Hudson sparked heavy trading in the stock of the Minneapolis-based retailer, which for weeks has been regarded as a prime takeover target.

Within hours, after a $9-a-share runup in the stock's price, the offer was revealed to be a false one telephoned to Dow Jones by P. David Herrlinger, a Cincinnati stock broker who later was hospitalized for an undisclosed problem.

By then, millions of Dayton Hudson shares had changed hands in stock exchanges across the country based on the bogus offer. By the close, the stock's price was down by nearly $10 from the day's peak, leaving speculators with millions of dollars in potential profits or losses. The stock closed at $53, down $1 from the day before.

The New York Stock Exchange is analyzing trading in Dayton Hudson stock to detect possible signs of investors who may have bought or sold shares on the basis of illegal insider information. The Securities and Exchange Commission also is investigating the incident.

Herrlinger's brother, Thomas Herrlinger, is a broker for the E.F. Hutton & Co. Inc. office in Albuquerque, N.M. Steve Nelson, a Hutton spokesman in New York, said the firm believed neither Thomas Herrlinger nor other Hutton employees were aware of the bogus offer until it was reported by Dow Jones News Service. Nelson said Hutton was cooperating with the SEC and was conducting its own investigation.

Officials also are investigating whether David Herrlinger attempted to profit from the stock's activity following the buyout announcement, although there is no indication he owned or was speculating in the stock.

For the purveyors of news, the incident raised important procedural questions. Dean Robart, a former Wall Street Journal reporter who now publishes a newsletter on the business media, said that while news services need to protect their accuracy, they also know they could lose customers if they are routinely slow in reporting breaking financial developments.

"If you do too much checking and it's legitimate, you're going to get beat to the punch," Robart said. "The most surprising thing to me is that it doesn't happen more often."

William Clabby, vice president of Dow Jones & Co., said: "We have strict procedures on these things . . . This guy just got through our net."

Market watchers said many traders quickly grew suspicious of the Herrlinger offer because there was no information about the financing for Herrlinger's supposed massive deal and because he was an unknown in investment circles.

But although the market in many cases can weed out suspicious information on its own, information that apparently has been validated can prove damaging. Before running his story, for example, Dow Jones called Herrlinger back to confirm his identity and that he actually was an investment professional.

Everett Groseclose, managing editor of Dow Jones News Service, said he knew of no other bogus stories that had made it on the wire. There had been other attempts to get phony information on the wire, but they were detected beforehand, he said.

The SEC prosecutes those who knowingly release false and misleading information about a potential merger or takeover but, aside from acting as a deterrent, that cannot prevent such information from being released in the media.