NEW YORK, DEC. 19 -- The Dow Jones industrial average finished unchanged today as Tuesday's exuberance over interest rate reductions failed to translate into substantial gains.

"Everybody knew this was coming," one trader said. "It's a classic case of buy the rumor, sell the news."

The Federal Reserve Board's reduction of the discount rate was positive for interest-sensitive stocks, such as banks and finance companies, because it will lower the banks' cost of funds. Some money-center bank and finance-company stocks did rise today on the news: BankAmerica Corp. was up 1 5/8 at 26 5/8 at the close, Manufacturers Hanover Corp. was up 1 5/8 at 22 1/2, Golden West Financial was up 1 5/8 at 24 5/8 and the Federal Home Loan Mortgage Corp. was up 2 at 51 1/4, trading as high as 51 3/4. But Citicorp, reeling from Tuesday's announcement of further layoffs and loan losses, fell 7/8 to 13 1/4.

But the discount-rate cut is also being read as a signal that the Fed is concerned that the U.S. economy has entered a recession, and that could spell bad news for quarterly earnings due out next month.

"The market can't make up its mind," said Tim Hellman, a trader at Dreyfus Corp. "It was good news, what happened, but does this mean all the good news is behind us? I myself am looking for a sell-off."

Stocks were hampered by a healthy 1 5/32 drop in 30-year bonds after the Fed eased credit further today by lowering the federal funds target rate -- the rate that banks charge each other for overnight loans -- by 0.25 percent to 7 percent. Many bond-market participants had expected at least a 0.5 percent cut.

"Given the disappointing action in bonds, I'm surprised our market isn't selling off some more," said one trader.

Jack Barbanel, a market strategist at First Global Asset Management, said he was not surprised that the Dow failed to extend Tuesday's gains.

"Both stocks and bonds had extended themselves on expectations of an easing, and a reasonably aggressive easing," he said. "In order for the market to have a better day, there would have to have been a follow-through with a prime-rate cut, which there was not."

The Dow closed at 2626.73, unchanged, in moderately heavy volume of 180.38 million shares. Advances outstripped declines by a slim margin.

Federal National Mortgage Association fell 1/4 to 20 1/4 on heavy profit taking. Analysts said that investors sold blocks of as large as 100,000 shares of the stock, which has rallied about 5 points since the beginning of the month. The stock ended as the fifth-most-actively traded issue on the New York Stock Exchange.

Primerica shares rose 3/8 to 23 5/8 after announcing it had agreed to acquire MNC's Landmark Financial Services for $370 million. On the same news, MNC dipped 1/8 to 3 1/2.

Gold-mining stocks rose as the Comex February gold futures contract surged $9.60, to $388, on renewed fears of war in the Middle East. Newmont Mining rose 2 1/4 to 36 3/8, Homestake Mining rose 1 1/8 to 17 1/2 and American Barrick Resources Corp. rose 1 to 20 3/8.

The Dow transports rose 994 to 916.99, while utility stocks rose 0.50 to 211.58.

Among broad stock indexes, the Standard & Poor's 500 finished up 0.15 at 330.20, the NYSE Composite up 0.16 at 180.35, the Value Line up 0.94 at 240.69, the Amex Market Value up 1.62 at 306.65 and the Nasdaq Composite up 1.05 at 371.22.