The stock market fell Friday but held on to most of the previous day's 60-point gain in heavy trading dominated by the expiration of stock futures and options.
Prices were driven down at the opening by a Federal Reserve report on factory usage that focused the economic picture back toward inflation and a possible interest-rate hike.The Dow Jones industrial average fell 20.53 to 3,933.35. The index was down as much as 40 points early in the session.
Declining issues outnumbered gainers by about 2 to 1 on the New York Stock Exchange.
Half of Friday's volume was handled in the first 11/2 hours as the market went to its sixth-busiest day in history. Volume on the floor of the Big Board came to 410.69 million shares as of 4 p.m., up from more than 280 million the previous session.
The Federal Reserve reported factories operated at 84.7 percent of capacity in August, the highest level since April 1989. The news suggested the economy was growing more quickly than many have anticipated and renewed suspicions that the Fed might raise interest rates again. The economic news sent bond prices plunging.
"It's phenomenal with bond prices down 11/2 points to have stocks down only 24," Don Hays, investment strategist at Wheat First Butcher Singer, said late in the afternoon before stocks recovered even more.
Other analysts said the market's behavior Thursday and Friday shouldn't be seen as a sign of things to come. The options and futures expirations can cause wild swings in price that have little to do with fundamental stock values.
"The market is reversing some of the silliness at 4 p.m. yesterday," Lawrence Rice, chief market strategist at Josephthal Lyon & Ross, said of Friday's drop.
Much of Thursday's surge and Friday's drop was related to furious efforts to complete trading in options and futures tied to stock market indexes before Friday's expiration. Four times each year the options and futures expire at the same time in what's known as a "triple-witching hour," frequently causing broad price swings in the underlying stocks.
General Motors led the Dow industrials lower, finishing down 11/8 at 501/2. IBM closed up 11/4 at 71.
Broad market indexes were also lower. The NYSE's composite index fell 1.65 to 259.77. The Nasdaq composite index fell 0.75 to 777.91. The Standard & Poor's 500-stock index fell 3.62 to 471.19
At the American Stock Exchange, the market value index rose 0.12 to 459.86.