Dow Up 6.04; Bonds Mixed on Tax Rumors : Market Overview

* Stocks closed out the week with modest gains after an erratic session marked by profit taking and bargain hunting. The Dow Jones industrialse rose 6.04 points to 3,232.78, trimming the loss for the week to 32.20 points.

* Treasury bond yields were mixed as the market grew increasingly nervous about tax-cut proposals circulating in Washington and their potential effect on government borrowing and inflation, analysts said.

Stocks

Stocks continued to seesaw as many investors exited while others poured in. Some of Friday’s action stemmed from growing concern about President Bush’s State of the Union address Tuesday, when he will outline economic initiatives.

Alfred Goldman of A. G. Edwards said, “The market still has some upside momentum,” but added that the lofty levels to which some stocks have been pushed have made prices vulnerable. “It has very spindly legs underneath it, which means we can get sharp pullbacks at any time.”

“With the President’s long-awaited speech Tuesday, some people may want to lock in profits,” added George Pirrone, a vice president at Dreyfus Corp.

Many investors want Bush to propose steps to pull the economy solidly out of recession, but others are worried about the possible use of tax cuts, which could swell the federal budget deficit.

While stocks remain a compelling vehicle in comparison to other securities, analysts said the choices are becoming less clear-cut after the recent dramatic rally.

Still, in the broad market advancing issues outnumbered declines by about 9 to 8 on the New York Stock Exchange Friday, and the chief index of smaller stocks, the NASDAQ composite index, rose 1.82 points to 624.68.

Big Board volume came to an estimated 214.55 million shares, against 234.58 million Thursday.

Among the market highlights:

* Defense stocks tumbled on new reports that Bush will propose major new cuts in Pentagon spending. Martin Marietta sank 2 7/8 to 53, McDonnell Douglas dropped 3 3/8 to 71 3/8, Raytheon slid 2 to 84 1/2, and Lockheed lost 1 1/2 to 41 3/4.

* Paper and lumber stocks were big winners as investors continued to seek out firms that should improve with the economy. Kimberly-Clark gained 2 5/8 to 49 7/8. Bear Stearns repeated a buy rating on the company. Among others, Scott Paper rose 1 1/8 to 37 5/8, Georgia Pacific added 3/4 to 62 7/8, and Stone Container jumped 1 3/4 to 30 1/4.

* Other industrial-stock gainers included steel maker Quanex, up 1 1/2 to 24 5/8; copper producer Phelps Dodge, up 1 3/4 to 75 5/8, and Owens-Corning, up 1 to 25 7/8. But diesel-engine maker Stewart & Stevenson dropped 5 1/8 to 57 7/8 after a Robert Baird & Co. analyst cut earnings estimates.

* Health care stocks rebounded from their recent selloff. Schering-Plough jumped 2 1/8 to 63, Genzyme rose 2 3/8 to 58 1/8, and HMO PacifiCare added 1 1/4 to 42.

* Orion Pictures leaped 1 1/4 to 3 3/4 on word that Turner Broadcasting may bid for the ailing film maker. Turner lost 1/8 to 24 5/8.

* Computer firm Unisys led the Big Board active-issues list for the second day running, gaining 1 to 8. Merrill Lynch and Bear Stearns upgraded their ratings on the firm, which Thursday reported its first quarterly profit in two years.

Overseas, stocks again closed sharply lower in Tokyo. The 225-share Nikkei average ended down 508.57 points to 21,072.15.

In London, the Financial Times 100-share average closed 14.9 points lower at 2,510.4. German shares ended a volatile session mainly weaker. Frankfurt’s DAX average fell 4.80 points to 1,664.77.

But in Mexico City, the Bolsa index rose 8.83 points to 1,603.75, a new record high.

Credit

Interest rates were mixed in bonds, as yields on shorter-term maturities rose while longer-term yields eased slightly.

The price of the Treasury’s 30-year bond rose 1/8 point, or $1.25 per $1,000 in face amount. Its yield slipped to 7.71% from 7.72% Thursday.

Bond analysts are nervous that a possible federal income tax cut may further fatten the budget deficit, which could lead to renewed inflation. So traders continued to take profits in shorter-term bonds, though the selling of longer-term issues slowed from recent days.

Another concern is the Treasury’s upcoming quarterly refunding auction in mid-February, said Steven R. Ricchiuto, economist at Barclays de Zoete Wedd Securities. A large supply of new bonds can temporarily depress prices.

The federal funds rate, the interest on overnight loans between banks, remained at 3.875%.

Currency

The dollar fell against major foreign currencies in volatile, rumor-driven trading with currency dealers jittery about Sunday’s meeting of the Group of Seven finance leaders.

The leaders are expected to propose steps to weaken the dollar, though the gameplan is uncertain.

In New York, the dollar closed at 1.595 German marks, down from 1.606 Thursday. Against the Japanese yen, the dollar fell to 123.53 from 123.80.

Commodities

Corn and soybean futures ended higher on the Chicago Board of Trade after investors ignored plentiful supplies and focused their attention on rumors of new export business.

In the precious metals market, March silver futures plunged 6.2 cents to $4.16 an ounce on New York’s Comex. Gold for current delivery in settled 20 cents lower at $354.40 an ounce.

Energy futures prices rebounded on the New York Merc, with light, sweet crude oil for current delivery rising 28 cents to $19.00 a barrel.

Market Roundup, D6