Dow Falls 10.01; Stocks Drop on Volcker News

Stock and bond markets fell in volatile trading Tuesday after it was announced that Federal Reserve Board Chairman Paul A. Volcker was leaving that post and that he was being replaced by economist Alan Greenspan.

The Volcker announcement early in the day sent the Dow Jones average of 30 industrial stocks about 22 points lower. The market quickly rebounded, reacting positively to the nomination of Greenspan. But late in the day, the closely watched indicator took another tumble, finishing 10.01 points lower at 2,278.22.

In the bond market, the Treasury’s key 30-year bond, which rose 3/8 point, or $3.75 per $1,000 face amount on Monday, plunged $32.50 by the end of Tuesday’s session--the sharpest decline in recent months. Its yield rose to 8.92% from 8.88%. Corporate and municipal bonds also posted sharp losses.

“The (credit) markets had total confidence in Paul Volcker. He was a man who commanded respect in this country and most of the world. He was viewed as a staunch fighter of inflation and as a guardian of sound money,” said Norman Robertson, chief economist at Pittsburgh’s Mellon Bank.

The federal funds rate, the interest on overnight loans between banks, traded at 6.438%, down from 6.688% on Monday.

Meanwhile, the broader stock market was also lower. Declining issues outpaced gainers on the New York Stock Exchange by about three to two. Big Board volume totaled 153.36 million shares, up from 149.34 million on Monday.

Among actively traded issues on the Big Board, Gillette jumped 1 3/8 to 32, boosted by rumors that the company could become the target of a takeover attempt.