'TWAS A WILD & STORMY RIDE : FUTURES CONTRACTS SHUTDOWN SAVES MARKET'S BACON.

Byline: Floyd Norris The New York Times

The circuit broke, and the market was saved.

On a day when emotions ran wild, the effective closing of the stock-index futures market in Chicago for the second time within minutes seems to have given traders time to think, and perhaps persuaded some to buy.

Futures contracts provide a way to bet on the movement of stock indexes, such as the Standard & Poor's 500. It was while futures were closed that stocks on Wall Street began rising, first slowly and then with exuberance.

The result was that after prices had gone into free fall for an hour, they turned around in the middle of the day and soared. It was the stock market's wildest single day since 1987, and it boosted the reputation of so-called circuit breakers, which were introduced after the 1987 stock market crash as a way to provide time for reflection by temporarily halting the action on hectic days.

``When you are at a limit, it does calm things down,'' said Robert Ray, who supervises stock-index futures trading for Dean Witter Reynolds at the Chicago Mercantile Exchange. ``People came in and looked for the value.''

Whether Tuesday's wild lurch was the bottom of the current correction, or just a pause in the beginning of a bear market, may not be clear for some time. But few traders who experienced it will soon forget it.

It was the kind of day that makes believers in rational markets cringe. There was no major fundamental news to bring about the reversal, just as there had been no really startling news to account for much of the fall of the last couple of weeks. Traders simply sold in massive quantities when they thought prices were heading lower, and then turned around and bought heavily when it appeared the trend had reversed direction.

The dramatic turnaround was reminiscent of the one that occurred Tuesday, Oct. 20, 1987, the day after the 1987 crash, when stock prices plunged in the morning and then recovered. Then, it briefly appeared the New York Stock Exchange might have to be closed because buyers could not be found for many stocks.

Tuesday, the Big Board managed to keep virtually every stock trading through the wild ride, but even staid blue-chip stocks fell a dollar or two a share within minutes when the rout was at its worst.

That stomach-turning period began at 12:14 p.m., when the Dow Jones industrial average of 30 blue-chip stocks was down about 33 points, a move that seemed mild compared with the 161-point fall of the previous day. Then, in the 62 minutes that climaxed at 1:16 p.m., the Dow fell more than 2 points a minute, hitting bottom with a decline for the day of 166.73 points.

During that period, some money managers found that selling a number of stocks was becoming difficult, since it was hard to find buyers for large blocks, particularly in the technology area.

So it appears, traders said privately, that some of those money managers began selling contracts on stock-index futures instead to try to protect themselves from further losses on their portfolios. Among them was the S&P 500, a key measure of the value of the stock market's most important stocks. That selling helped to drive down prices of all stocks, since the two markets - stocks and stock-index futures - tend to move together.

In Chicago, the most-watched trading is in the S&P 500 futures pit, where contracts on that index trade. Since 1987, that exchange has put in circuit breakers, which click in when the contracts are down 12 points and 20 points, the equivalent of about 100 and 170 points, respectively, on the Dow.

The first circuit breaker was hit at 12:24 p.m. New York time. That meant that for the next half hour, no contracts could trade below that level. It proved to have no impact. That triggered a two-minute halt in trading, after which trading could go on with a 20-point limit.

Trading reopened at 12:56 p.m., and took only five minutes to fall to the new limit. Once again there could be no trading below that limit for the next 30 minutes.

But that proved to be unnecessary. This pause in the futures market seemed to bring out buying interest in some blue-chip stocks.

CAPTION(S):

Photo, 2 Charts

Photo: (color) A lone trader reviews his notes af ter a day of wild trading in which more than 1.74 billion shares changed hands in the busiest day of NYSE history.

Associated Press

Chart: (1-2) A Year of Gains Almost Undone

(1) NASDAQ COMPOSITE

(2) DOW INDUSTRIALS