FINANCIAL MARKETS : Market Takes Wild Ride; Dow Trims Loss to 12.79

Stocks closed broadly lower Friday in volatile trading as stock and index options expired, while the dollar gained on the government’s report of an improvement in America’s trade deficit with Japan.

The Dow Jones industrial average was down as much as 41 points on continued interest rate worries, but trimmed its losses in a burst of late buying tied to expirations of options and futures contracts. The Dow ended at 3,815.26, down 12.79 points on the day but up 13.79 points for the week.

Declining issues beat advancers by about 9 to 5 on the New York Stock Exchange in heavy turnover of 363 million shares.

Analysts said the market’s volatility stemmed partly from the double expiration of index and individual options. But many Wall Streeters noted that investors’ mood overall remains sour in the wake of the Federal Reserve Board’s most recent boost in short-term interest rates.

The Fed increased its key discount rate and the overnight federal funds rate (what banks pay to borrow from each other) by 0.75 point last Tuesday, to 4.75% and 5.5% respectively. While the Fed’s goal is to prolong the U.S. economic expansion by keeping it from overheating, the continuing rise in rates is spooking the bond market and increasing the allure of bank CDs and other short-term accounts, thereby draining money from the stock market.

In the bond market Friday yields surged early in the day, then closed mostly unchanged. The yield on the benchmark 30-year Treasury bond closed at 8.12%, down from Thursday’s 8.13% and slightly below the 8.15% of a week earlier.

The dollar, meanwhile, showed strength after the government reported that the U.S. trade imbalance with Japan eased to $5.73 billion in September from $5.80 billion in August, even though the overall deficit widened to $10.13 billion from $9.68 billion.

In New York, the dollar closed at 98.53 Japanese yen and 1.555 German marks, up from 98.35 yen and 1.551 marks late Thursday.

Among the market highlights:

* Many financial stocks dropped for a third straight day, responding to concerns that higher interest rates will squeeze profit margins. Citicorp fell 5/8 to 43 3/8, BankAmerica lost 1 to 39 3/8, First Chicago dropped 1 to 47 1/4 and Merrill Lynch was off 1/2 to 38 3/4.

* Utility stocks also sank on interest rate worries. The Dow utility index fell 1.25 points to 174.47, a new five-year low.

* Some industrial issues dropped on worries about the economy in the wake of rising interest rates. Clark Equipment slid 2 3/4 to 62 3/4, Dow Chemical fell 1 3/4 to 66 1/8, GM tumbled 3/4 to 37 3/4 and Emerson Electric was off 7/8 to 61 1/8.

* Technology stocks were a bright spot, as they have been all year. Software firm Autodesk surged 4 7/8 to 38 5/8 on a strong earnings report. Other winners included Informix, up 1 13/16 to 29 1/16; Intel, up 1 13/16 to 63 15/16; and Lotus, up 2 7/8 to 43.

Also, Shiva Corp., a Burlington, Mass.-based off-site computer networking firm, made an initial public offering at 15 and rocketed to 31 1/2 on Nasdaq.

* Another new issue, sporting goods retailer Sports Authority, a K mart Corp. spinoff, went public at 19 and surged to 24 on the NYSE.

* Hilton Hotels leaped 4 to 71 7/8, continuing its rise after the Southland-based company put itself up for sale on Thursday.

Overseas stock markets were mixed. Tokyo’s Nikkei 225-share average ended down 34.01 points at 19,302.56.

In Europe, the Frankfurt DAX 30-share average ended fractionally lower at 2,100.23, while London’s FTSE 100 index inched up 3.5 points to 3,131.0.

Mexico City’s Bolsa index took a new tumble, losing 36.10 points to close at 2,429.11.