Stocks Finish Mixed as Rate Worries Grow

Some late bargain hunting helped stocks recover part of their losses Monday, but the broad market ended mostly lower as concerns deepened about rising interest rates and inflation.

Treasury bond yields, however, fell for the first time in a week in light trading dominated by Wall Street speculators buying bonds cheapened after a two-day sell-off.

The Dow Jones industrial average fell 13.72 points to 5,464.31, rebounding from a loss of 55 points earlier in the afternoon.

The blue-chip index--which lost about 90 points last week as new signs of strong economic growth aggravated concerns about inflation and sent long-term interest rates above 7%--had by Monday fallen nearly 4% from its all-time high, set just over a month ago.

Most broader blue-chip measures were lower too. But in keeping with the recent trend, those indexes dominated by more speculative issues managed some small gains after a late rebound.

The Nasdaq composite index gained 1.71 points to 1,186.31, and the Russell 2,000 list of smaller companies rose 0.02 point to 346.87.

Analysts were sounding increasingly skeptical about the staying power of all sectors in current market and economic conditions.

“With interest rates above the 7% level, the impact is sufficiently negative to slow certain areas of the economy down,” said Ned Riley, chief investment officer at Bank of Boston. “The slow growth will eventually impact equities and people will gravitate to bonds.”

Notably, the investment firms Smith Barney and Wheat First Butcher Singer on Monday called for their clients to cut back on their stock holdings because of rising interest rates. Higher rates increase corporate borrowing costs, slow consumer spending and make bonds a more attractive investment.

The price of the Treasury’s main 30-year bond rose 19/32 point, or $5.94 per $1,000 in face value. Its yield, which moves in the opposite direction, fell to 7.05% from 7.11% on Friday.

Bond trading volume was extremely thin, with markets in Tokyo and London closed for holidays and U.S. investors taking a breather. Analysts said Monday’s modest advance in prices was spurred largely by speculative buying by bargain hunters and does not signal a more fundamental shift from the bearishness that pushed bond prices sharply lower last week.

The long bond’s yield has closed above 7% for three consecutive sessions since punching through that threshold on Thursday for the first time in about a year.

Among market highlights:

* Among widely held blue-chip stocks, Kodak fell 2 1/2 to 73 3/4, United Technologies lost 1 7/8 to 105 1/8, Merck fell 1 1/4 to 57 and Philip Morris lost 7/8 to 87 7/8.

* Among technology stocks, Apple Computer gained 1 3/4 at 25 5/8 as IBM confirmed an arrangement to use and resell the software that runs Apple’s Macintosh computer. IBM said it will not immediately build Macs itself. IBM lost 1 1/8 to 107.

Zenith Electronics added 7 1/4 at 22 7/8, continuing a run-up in which the stock has more than doubled in the week since Zenith announced plans to enter the online business.

America Online jumped 5 1/4 to 67 7/8 after a report appeared in Japan saying the company is teaming up with Mitsui to enter the Japanese Internet market. AOL declined comment. Mitsui executives in the United States could not be reached.

* Comparator Systems rose 23/32 to 1. The Newport Beach-based company set a one-day volume record for a Nasdaq stock, at 149 million shares. The previous mark had been set by Intel, which traded about 68 million shares Jan. 17. Earlier Monday, Comparator had announced plans to unveil a new line of identity verification systems next week. The systems may be used for applications such as passports, driver’s licenses, credit-card authorizations, check cashing and automated teller machines.

* On New York’s Commodity Exchange, June gold closed up $1.60 at $395.70 an ounce amid renewed inflation concerns. Gold stocks rallied. Battle Mountain rose 1/2 to 9 1/8, TVX Gold gained 3/4 to 9 1/8, Placer Dome was up 7/8 to 28 1/2, Newmont Mining jumped two to 58 1/2 and Newmont Gold added 2 1/4 to 58 7/8.

Overseas, stock markets were closed in Tokyo and London for holidays. In Europe, Frankfurt’s 30-share DAX index rose 11.42 points to 2,468.91.

Corn prices rose on fears that wet, cold weather would postpone planting of this year’s crop. Wheat, oil and copper prices fell. At the Chicago Board of Trade, July corn closed 1 3/4 cents per bushel higher at $4.54 3/4. September corn, which will see some deliveries from the new crop to be harvested this fall, rose 8 3/4 cents to $3.79 1/2.

Market Roundup, D8