NEW YORK, JULY 10 -- The Dow Jones industrial average dropped 23 points to close at 2890 amid interest rate jitters associated with today's Treasury auction of savings and loan rescue bonds.

The decline was fed primarily by index-arbitrage program sellers and day-traders, since many institutional investors remained on the sidelines to ascertain how much supply the credit markets can tolerate.

Today's auctions of $5 billion in Resolution Funding Corp. 30-year bonds, and a record $8 billion in seven-year Treasury notes on Wednesday, are considered litmus tests for the near-term direction of interest rates.

The bond market, while only mildly soft for much of the day, was nevertheless seen as being poised to descend if the Refcorp auction proved as much a disappointment as have the last two auctions in January and April. The T-bond futures closed precariously above their late-June level.

At the close, the Dow stood at 2890.84, down 23.27, while declines outpaced advances on the New York Stock Exchange by nearly 2 to 1 on moderate but program-inflated volume of 147 million shares.

Stocks remained in a narrow, 13-point range until midafternoon, when perceived technical deterioration in both bond futures and stock index futures raised some eyebrows.

"It was nail-biting time in the bond market," said one strategist at a major trading desk. "Nerves were on edge."

In the end, however, the Refcorp auction progressed about as expected.

Bond experts had projected yields on the new 30-year bonds to average 37-40 basis points above current long Treasury yields, and the average yield turned out to be 8.93 percent, in line with expectations.

At the close, International Paper held a 7/8 gain to 52 1/2. The company reported second-quarter net at $1.70 per share, compared with $2.04 a year ago. Results were near the top end of forecasts.

But Paper's results only served to counterbalance earnings sentiment that had been dampened early on when Stamford, Conn.-based Pitney Bowes, the world's largest manufacturer of postage meters and mailing systems, tumbled 4 7/8 to 45, a nearly 10 percent plunge, after a delayed opening.

The selling was prompted by news after the market closed on Monday that the company expects second-quarter net to be "slightly lower" than the 78 cents per share reported a year ago. The stock eventually closed down a hefty 6 3/8 at 43 1/2 on heavy volume.

In recent weeks, stocks such as Caterpillar, Tyco, L.A. Gear, Microcom and even AT&T have dropped sharply on the announcement of earnings projections that were even mildly disappointing.

The Dow transports finished down 3.47 at 1145.62, while the interest-sensitive utilities tumbled 1.51 to 203.60, reinforcing the concerns of analysts already warily watching poor relative strength in financial stock groups. The utilities closed at their lowest level since late April.

Among broad stock indexes, the Standard & Poor's 500 was down 3.03 at 356.49, the NYSE Composite fell 1.47 at 194.76, the Value Line dropped 1.61 at 284.81, the Amex Market Value was off 0.92 at 357.73 and the Nasdaq Composite fell 0.71 at 460.97.