NEW YORK, OCT. 10 -- The Dow Jones industrial average skidded 37 points today after being down as much as 51 points in the wake of a poorly received auction of $8.5 billion in seven-year Treasury notes.

The weakly bid seven-year note fetched a higher-than-expected yield of 8.76 percent, underscoring the threat of continued high interest rates to an economy teetering on the brink of recession amid massive federal budget deficits that the government appears incapable of trimming, traders and analysts agreed. After the seven-year auction, the 30-year bond promptly returned to session lows, off 24/32.

Also troubling stock traders was the inability of the Dow to rally significantly despite an afternoon tumble in crude-oil prices.

November crude sank from a session high of $41.15 per barrel to settle down $1.71 at $38.69 after trading as low as $38. But while the oil-price reversal was occurring, the Dow managed no more than a 5-point gain at midafternoon, frustrating stock bulls.

The prospect of additional upward pressure on interest rates on Thursday, as the government attempts to auction $5 billion in the relatively unpopular 30-year bonds slated for the S&L bailout, only added to the discouragement felt by the bulls today, block traders agreed.

Unlike Tuesday's 78-point Dow loss, today's decline owed much to index-arbitrage program selling, traders said.

At the close, the Dow stood at 2407.92, down 37.62, to post a new 16-month low. Declining stocks far outpaced advancing issues on the Big Board by a ratio of 4-1 on moderately active volume of 169 million shares.

The late, program-fueled sell-off stopped almost immediately after the New York Stock Exchange's program-selling curb was triggered at 3:31 p.m. The curb mandates that program sellers may execute their orders over exchange computers only following upticks in the stocks that make up program-trading baskets.

"There was some confusion about why the stock market was not rallying as oil fell sharply this afternoon," said analyst Newton Zinder at Lehman Brothers. "The market had built up hope earlier on oil-market rumors that Iraq's Saddam Hussein had been killed."

But when both the White House and the Iraqi Embassy denied the stories, bonds peaked for the morning and stocks slipped off what proved to be their session high at Dow 2460.

"Market breadth has turned lousy again, which tends to confirm today's price decline," Zinder said.

Among Dow components, Alcoa stubbornly extended its loss to almost 3 points by midafternoon and finished down 3 1/4 at 56 1/2. Allied Signal lost 1 to 26 1/2, IBM translated a morning gain into a 1 7/8 loss at 103 1/2, Procter & Gamble gave up 1 1/2 to 75 3/8 and United Technologies lost 1 1/2 to 44.

The Dow's oil stocks also fed the decline as Texaco sank 1 1/8 to 59 7/8, Exxon slipped 1 to 48 3/4 and Chevron eased 1 5/8 to 70 5/8.

Westinghouse slipped 3/4 to 27 1/2 despite its report of third-quarter earnings at 87 cents a share, up from 80 cents and only about a penny below Wall Street expectations, according to Zacks Investment Research in Chicago.

Among volume actives, Toys R Us sank 1 3/4 to 20 3/4 after some disparaging words on future prospects from a major brokerage house, Wal-Mart slipped 1 to 25 1/8, but Motorola managed a 1/4 gain to 53 after Tuesday's earnings-driven massacre.

The Dow transports finished down 5.92 at 835.43, also nearing a crucial test of their late-September lows, and the utilities slipped 1.07 to 203.60.

Among broad stock indexes, the Standard & Poor's 500 was down 4.70 at 300.40, the NYSE Composite down 2.44 at 164.97, the Value Line down 3.25 at 221.31, the Amex Market Value down 3.79 at 299.26 and the Nasdaq Composite down 5.86 at 333.25.