NEW YORK, AUG. 27 -- The stock market retreated for the second straight session today in selling ascribed to concern over a weak dollar and rising interest rates.

The Dow Jones average of 30 industrials fell 26.79 to 2675.06, bringing its drop since it hit a record closing high Tuesday to 47.36 points.

Volume on the New York Stock Exchange slowed to 163.61 million shares from 196.19 million in the previous session.

With interest rates on the rise in the credit markets, prices of long-term government bonds showed losses today of nearly $15 for each $1,000 in face value.

Analysts said the rise in rates has increased the competitive appeal of interest-bearing investments in comparison to stocks. Yields available on long-term Treasury bonds have pushed above 9 percent lately, and short-term Treasury bills now return well above 6 percent.

Brokers also said traders have been unsettled by recent weakness in International Business Machines stock, which took a leading role in the market's rally of the past few months and is often described as a market "bellwether."

IBM dropped 1 5/8 to 166 1/4 in active trading.

With all the various negatives, analysts noted that the relatively slow pace of activity suggested no urgency to sell. Many described the pullback over the past two days as an overdue pause after the runaway rise of the market since late spring.

Tobacco stocks slumped in selling ascribed to profit taking after a strong recent advance prompted by court decisions favorable to the industry in product-liability cases. Philip Morris fell 3 3/4 to 118 5/8 and RJR Nabisco was down 2 1/4 at 68 1/8.

Other losers among the blue chips included General Electric, down 1 1/4 at 62 7/8; American Telephone & Telegraph, down 3/4 at 33 5/8; Ford Motor, down 3 5/8 at 107 3/4, and Merck, down 1 5/8 at 205 7/8.

Savings and loan issues, which are highly sensitive to changing interest-rate expectations, showed some losses. H.F. Ahmanson dropped 1 1/2 to 22 1/4 and Great Western Financial 1 1/8 to 22.

On the plus side, Munford jumped 6 7/8 to 35 1/2. The company said Tuesday it had retained an investment banking firm to study ways to maximize its shareholder value.

Advanced Systems gained 3/4 to 28 1/8. The company reported earnings for the fiscal quarter ended July 31 of 36 cents a share, up from 23 cents in the comparable period a year earlier.

Declining issues outnumbered advances by about 2 to 1.

The exchange's composite index lost 1.68 to 185.26.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 192.51 million shares.

Standard & Poor's index of 400 industrials fell 3.63 to 387.28, and S&P's 500-stock composite index was down 3.19 at 331.38.

The Nasdaq composite index for the over-the-counter market slipped 0.46 to 454.80.

At the American Stock Exchange, the market value index closed at 361.02, down 1.96.