CREDIT : Analysts Puzzled as Bond Prices Rally

NEW YORK — Bond prices rallied Thursday in quiet trading in response to a wave of late selling in the stock market, where the Dow Jones industrial average fell to its lowest point since the Oct. 19 crash.

The plunge in stock prices puzzled bond analysts, who said a rally in the dollar and some good news on the economy should have helped stocks.

Meanwhile, bond investors were unperturbed by signs of healthy economic growth, which usually raises fears of inflation and depresses bond prices.

“It’s a time of great confusion,” said James Feeney, a vice president of Rodman & Renshaw Inc. in New York. “Stocks were down and bonds were up, which is just the reverse of what you would have expected.”

Bond prices gained slightly following the announcement of a round of European interest-rate cuts. The lower rates in Europe take pressure off the United States to raise its own rates.

The Bundesbank cut West Germany’s discount rate, the rate it charges on loans to commercial banks, by half a percentage point to 2.5%. British, French and other European central banks also announced cuts in some rates.

Bond market analysts said the West German move had been anticipated, but not the other rate cuts.

Bond prices staged most of their rally after the late plunge in stocks that sent the Dow industrials down 72.44 points to 1,776.53.

Bond buyers were unconcerned by reports that factory use rose 1.1% in October or that some retailers posted strong sales gains.

Federal Funds Rate Unchanged

The next test for the bond market was expected to be Friday’s employment report. Strong employment gains could heighten inflation fears and hurt bond prices.

The bellwether 30-year Treasury issue rose 29/32 point, or about $9 for every $1,000 in face value, from late Wednesday’s price. Its yield fell to 9.05%, down from about 9.13% late Wednesday.

In the secondary market for Treasury bonds, prices of short-term governments rose 3/16 point; intermediate maturities rose 9/16 point, and long-term issues were up 27/32 point, according to Salomon Bros.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 0.56 to 110.17. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 4.52 to 1,153.60.

In corporate trading, industrials rose 3/8 point and utilities rose point in light trading.

Yields on three-month Treasury bills were down 7 basis points to 5.30%. Six-month bills fell 4 basis points to 6.12% and one-year bills were off 5 basis points at 6.50%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, traded at 6.875%, the same as late Wednesday.