Bond Yields Fall, but Dow Adds Just 12.43 : Market Overview

* Despite another major rally in bonds, the stock market recouped only a small portion of its recent losses. The Dow Jones industrial average, off 84.02 points over the previous four sessions, rose 12.43 points to 3,290.04.

* The bond rally extended for a second big day, driving yields on long-term Treasury bonds to their lowest levels since early January on optimism about inflation.

* The Japanese market rebounded, only to fall into another deep slump early today.

Stocks

The market was unable to draw much strength from another sharp drop in interest rates--a sign of investors’ skittishness about the world economy, analysts said.

The Dow waffled for most of the day before gaining briskly in the final few minutes of trading.

But analysts noted that advancing issues managed to top decliners by about 6 to 5 on the New York Stock Exchange. Volume came to 180.08 million shares, against 191.84 million Wednesday.

Jack Solomon, a Bear, Stearns & Co. technical analyst, said the market is showing signs of trying to stabilize after its recent selloff. “Within a week or so, we should see the bottom,” he said. “Then we should start the summer rally.”

Other analysts aren’t so sure. Persistent weakness in the Japanese stock market and in European markets is raising worries that the global economy is headed for a new recession, experts say.

In Tokyo, the Nikkei index jumped 497.99 points, or 3.2%, to 16,039.94 on Thursday. But by midday today, the Nikkei had fallen 520.57 points to 15,519.37. Each time the market rallies, sellers quickly flood in again.

Still, Wall Street has managed to ignore Tokyo’s travails for most of this year, and analysts note that the primary focus in the U.S. market remains corporate earnings. Favorable reports still are being rewarded with higher stock prices, the bulls note.

Among the market highlights:

* Stocks boosted by earnings reports included toy maker Fisher-Price, up 2 1/8 to 21 1/4; aerospace giant Allied-Signal, up 1 1/2 to 54; computer-products firm Rainbow Technologies, up 1/2 to 17 1/2; and home builder Centex, up 1/4 to 46 1/2.

* Elsewhere, many energy stocks were strong. Exxon rose 1 to 63 despite its report of lower quarterly earnings. Other energy gainers included Chevron, up 1 5/8 to 69; Texaco, up 1 to 63 1/2; and Ashland Oil, up 7/8 to 24 3/4.

* Defense stocks got a lift from news that investor Warren E. Buffett had acquired about 15% of General Dynamics. GD rose 1 3/4 to 75 5/8. Other winners included Lockheed, up 1 to 46 1/4; Loral, up 1 1/2 to 35 1/2; and E-Systems, up 1/2 to 34.

* On the downside, investors expressed disappointment with McDonald’s earnings, which though better than a year ago were less than expected, at 69 cents a share for the quarter versus 63 cents. The stock fell 2 1/4 to 42 3/8.

McDonald’s Vice Chairman Jack Greenberg said the increase in earnings reflected the success of efforts to control costs and set prices that attract consumers in spite of the poor economy.

Also losing ground on disappointing earnings were Monsanto, off 1 1/2 to 54 1/2; Surgical Care Affiliates, off 2 to 28; and International Technology, down 3/8 to 5 1/4.

* Immunex added 1 3/4 to 34 3/4. The company settled suits with Hoechst AG affiliates Behringwerke AG and Hoechst-Roussel.

* Alcan Aluminum dropped 1/2 to 19 3/8. It halved its dividend, citing difficult business conditions and a need to conserve cash.

In Europe, London’s Financial Times 100-share average closed 11.6 points higher at 2,399.5. In Frankfurt the DAX average stabilized after recent heavy losses, easing 4.85 points to 1,623.37.

In Mexico City, the Bolsa index sank 41.09 points to 1,584.12 as a new selling wave hit.

Credit

The rally in bonds carried over from Wednesday, sending the 30-year Treasury’s price up 15/16 point, or $9.38 per $1,000. Its yield tumbled to 7.53% from 7.61% Wednesday, and is nearing the January low of about 7.4%.

The rally began in the morning after the government reported higher than expected state unemployment claims. The Labor Department said claims rose 19,000 for the week ending July 11. Economists had expected a gain of 13,000.

Higher unemployment is bullish for bonds because it allays market fears that the economy may be growing fast enough to spur inflation.

Later, the market picked up steam after Treasury Secretary Nicholas F. Brady hinted that the government could reduce the size of its planned 30-year bond offering in August. Because those bonds have been in great demand in recent days--as investors rush to lock in long-term yields--the threat of a diminishing supply ahead may have spurred buying.

In Chicago after a meeting with business leaders, Brady noted that the Treasury had cut the size of its 30-year auction earlier this year. Last November’s auction was for $12 billion in 30-year securities. The size was cut to $10 billion in February, then left at $10 billion in May.

The government has borrowed less long-term and more shorter-term in part because long-term interest rates have remained stubbornly high.

On Thursday, Brady didn’t say decisively that the Treasury would use a similar strategy for the upcoming auction. But he said, “We’ll look at that refunding again when it comes up.”

The federal funds rate, the interest on overnight loans between banks, dropped to 3.313% from 3.50% Wednesday.

Currency

The dollar finished mostly lower, with traders having little to guide them other than concern about central bank intervention.

Analysts said trading among foreign currencies, known as cross trading, dominated the market.

The dollar eased in New York to 1.482 German marks from 1.485 Wednesday. It rose to 126.70 Japanese yen from 126.63.

Commodities

Frozen concentrated orange juice futures continued their slide on the New York Cotton Exchange as demand remained sluggish in the face of huge supplies.

On other markets, grains and soybeans were lower, livestock and meat were higher, precious metals were mixed and energy gained.

Orange juice futures have been in a steady fall the last few months due to large Florida and Brazilian crops and reduced demand, said Sandra Kaul, an analyst with Shearson Lehman Bros. Inc.

Frozen orange juice for September delivery settled 1.85 cents lower at $1.158 a pound on reports that Brazilian exporters may offer more attractive prices to buyers in coming weeks.

Meanwhile, on New York’s Commodity Exchange, August gold closed 30 cents lower at $358.60 an ounce, and July silver was unchanged at $3.96 an ounce.

September light, sweet crude oil finished 12 cents higher at $21.96 a barrel on the New York Mercantile Exchange.