NEW YORK, OCT. 29 -- The Dow Jones industrial average dropped almost 6 points today as the bond market slumped and the nation's largest banks again became focal points of selling. The Dow, up 28 points by midmorning, posted as much as a 24-point loss by midafternoon.
Stocks lost broadly despite a move by the Federal Reserve to ease its federal funds rate in response to passage of a federal budget agreement. In its tepid response, the stock market was taking its cue from the bond market, which seemed more concerned with the pace of inflation and the poor reception to a Treasury bond auction. Heavy selling by computerized program traders also hammered stocks through most of the afternoon.
"The market is showing extremely bad action -- people expected a little more upside after the Fed move on the funds rate today," said block trader John Burnett at Donaldson Lufkin & Jenrette. "The sloppy trading we've seen in stocks indicates there's not much confidence at all in the market.
"People felt good coming off the weekend, with the budget battle behind them," he added. "But there's a touch more reality this afternoon -- a feeling that not much has been accomplished on the federal deficit after all. There's more talk of stagflation, the worst of all possible scenarios for the market."
A new surge in active December oil prices, which settled up $1.67 at $34.68, also tended to undermine stocks, although some traders said the market has become adjusted to volatile swings in the energy markets.
At the close, the Dow stood at 2430.20, down 5.94, while declining issues outpaced advancing ones on the Big Board by an almost 5-to-2 ratio on lightly moderate volume of 133.9 million shares.
Money-center banks led the slide today after Salomon Brothers painted a gloomy picture of the nation's real estate industry -- and its bank lenders -- for its institutional clients. Wells Fargo closed down 2 3/4 at 45 1/8, Bankers Trust was down 1 3/8 at 29 3/4, Bank of New York was off 1 5/8 at 14 1/2, First Interstate down 1 at 17 1/8, Security Pacific off 7/8 at 17 3/4 and Mellon down 7/8 at 18 1/8.
Other financial stocks also were affected. Student Loan Marketing Association was down 1 7/8 at 33 3/4, while Federal National Mortgage Association dropped 3/4 to 27 1/8 and Federal Home Loan Mortgage Corp. slid 1 1/2 to 32 1/8.
The new slide in big bank stocks took many traders by surprise. Traders said they did not expect new selling in the banks so soon after last week's debacle.
Among Dow components at the close, full-point midafternoon losses had been trimmed to fractions in such issues as IBM, Philip Morris, Merck and Coca-Cola. General Motors, which which is expected to permanently close of four idled plants, finished off 1/4 at 37. Boeing closed unchanged at 46 1/8 after reporting strong quarterly earnings.
The Dow transports slipped 11.98 to 827.12, while the utilities eased 0.31 to 208.38.
Among broad stock indexes, the Standard & Poor's 500 was down 2.83 at 301.88, the NYSE Composite down 1.47 at 165.24, the Value Line down 2.21 at 217.46, the Amex Market Value down 2.60 at 288.79 and the Nasdaq Composite down 3.56 at 330.80.