Bond Yields Slide; Small Stocks Jump : Market Overview

* Interest rates fell back after four straight rising sessions, as fears about a Clinton presidency ebbed somewhat.

* Stocks closed mixed, with smaller issues beating blue chips.

* Oil prices plunged on news of ample crude inventories.

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The bond market, exhausted by four days of selling, rallied strongly and sent interest rates lower.

The yield on the Treasury’s 30-year bond fell to 7.60% from 7.64% Tuesday, as the price gained $6.25 per $1,000.

Yields on shorter-term securities also dropped sharply. The yield on five-year T-notes slid to 5.77% from 5.92%. The discount rate on 1-year T-bills finished at 3.30%, down from 3.44%.

Rates have rocketed on worries about Bill Clinton’s expected victory in the presidential race. Bond investors and traders fear that Clinton will increase federal spending to spur the economy, in the process widening the budget deficit and spurring inflation.

Elliott Platt, analyst at Donaldson, Lufkin & Jenrette Securities, said the market in recent days may have overreacted to Clinton’s plans. “Overall, people started (Wednesday) to take a more dispassionate view of what any Clinton package might entail,” he said.

Bonds’ gains also appeared to be technical. Traders said much of the buying was by speculators covering “short” positions--bonds sold in advance in anticipation of the recent surge in yields. Also, some investors were unwinding hedge positions, in which Treasury bonds are traded against corporate debt.

The federal funds rate, the interest on overnight loans between banks, was 2.94%, up from 2.81% Tuesday.

Stocks

Smaller stocks again paced the market, while blue chips lagged.

The NASDAQ composite index of smaller issues jumped 4.45 points or 0.8% to 597.15, while the Dow Jones industrials added just 1.08 points to 3,187.10.

Winners topped losers 11 to 8 on the NASDAQ market, while on the New York Stock Exchange losers beat winners by about 9 to 8. NYSE volume was 219.10 million shares, down from 258 million Tuesday.

The Dow approached the key 3,200 level during the day, getting as high as 3,199.80 but failing to surmount it.

Robert Walberg, analyst at MMS International, said the Dow should soon pierce 3,200. “I think the bearish momentum is exhausted. We’re in the process of constructing a launching pad to go higher.”

Analysts say strength in smaller stocks points to a broadening of interest in the market. That may stem from investors’ warming attitude toward a Clinton presidency: Wall Street believes that Clinton would engineer faster economic growth and thus higher corporate profits.

Still, there are many bears around. The NYSE reported that short interest surged to a record 948.30 million shares on Oct. 15, up 40.76 million from a month earlier. Short sales of stock represent traders’ bets that prices will fall near term.

Among the market highlights:

* Many industrial issues continued to gain as hopes improved for the economy. Ingersoll-Rand rose 1 1/2 to 31 1/4, Kimberly Clark jumped 1 3/4 to 55 3/8, truck maker PACCAR added 1 to 55 1/4, Cummins Engine leaped 1 1/4 to 63 1/2, steel maker Nucor gained 2 1/8 to 54 1/8, and Inland Steel was up 1 1/4 to 18 1/4.

Also, GM shot up 1 1/4 to 31, apparently on a report that the company’s outside directors want Chairman Robert Stempel to step down within a month.

* Some airline and railroad stocks were strong. AMR, parent of American Air, jumped 1 7/8 to 62 7/8 despite a huge quarterly loss. UAL, parent of United Air, rose 1 3/4 to 120 1/8. Among rails, Union Pacific leaped 1 3/4 to 55 1/4, and Norfolk Southern gained 1 3/8 to 59 1/4.

* Technology stocks rallied again, helping to drive the NASDAQ market. Tech stocks have been leading the market in recent weeks. Texas Instruments jumped 2 3/8 to 49 5/8, Motorola rose 1 to 97 1/4, Intel zoomed 2 1/4 to 69, Rainbow Technologies added 1 1/4 to 21 1/2, Qualcomm rose 1 1/8 to 24 3/4, and Xircom added 1/2 to 12 1/4.

But Conner Peripherals slumped 2 1/2 to 18 5/8 after the computer disk-drive maker posted a disappointing earnings gain. Also, brokerage Robertson Stephens warned that the business cycle for disk-drive makers may be peaking. Following Conner lower were Seagate, off 1 1/8 to 14 1/4, and Quantum, down 1 1/2 to 12 1/2.

* Two drug stocks were hit. Lilly fell 1 1/4 to 59 3/8 after posting a quarterly loss that included restructuring charges. And Syntex tumbled 3 to 25 after the company said it plans new cost-cutting and a shift in new-drug research because of continuing disappointment in its business in recent months.

Overseas, London stocks raced ahead after new interest rate cuts across Europe prompted further speculation of a cut soon in British rates. The Financial Times 100-share average rose 28.7 points or 1.1% to 2,645.70.

But in Frankfurt the 30-share DAX average lost 7.65 points to 1,503.90 on disappointment that German interest rates aren’t falling faster.

Shares closed firmer in Tokyo, with the 225-issue Nikkei average rising 153.86 points to 17,141.52.

Currency

An unsubstantiated rumor that Russian President Boris Yeltsin planned to resign sent the dollar jumping in late trading, a rare burst of activity in an otherwise quiet day on U.S. financial markets.

In New York, the dollar rose to 122.60 Japanese yen from Tuesday’s 122.50, and to 1.520 German marks from 1.516.

Commodities

Energy futures plunged on the New York Merc as a selloff spurred by news of ample crude oil inventories was accelerated by heavy commodity-fund selling.

New numbers from the American Petroleum Institute showed that refiners have not significantly reduced operations, leaving energy supplies in good shape.

Light, sweet crude oil for December delivery settled 44 cents lower at $21.61 a barrel, and November heating oil was 1.56 cents lower at 62.65 cents a gallon.

On New York’s Comex, October gold was 30 cents higher at $344.10 an ounce, and December silver 1.2 cents higher at $3.81.