FINANCIAL MARKETS : Stocks Mixed on Fed Jitters; Yields Rise

Market Overview * Stocks closed mixed after Federal Reserve Board Chairman Alan Greenspan warned that the Fed stands ready to raise interest rates to battle inflation. Most of the market’s strength was in smaller stocks.

* Short-term interest rates jumped after Greenspan’s speech, but longer-term bond yields were only slightly higher.

* Oil plummeted on sudden doubts that OPEC is serious about ending the growing glut of crude.

Stocks

The market sank early in the day as Greenspan delivered his testimony to Congress. The Dow industrials were off as much as 24 points early on.

But a rebound in health care, auto, airline and technology stocks helped buoy the market later. The Dow closed up 9.50 points at 3,544.78, although losing stocks topped winners by about 6 to 5 on the Big Board in active trading.

On the NASDAQ market, the composite index rose 6.07 points to 701.90, driven by tech stocks.

Greenspan told a House Banking subcommittee that although inflation pressures eased in May and June, “on balance, the news on inflation must be characterized as disappointing” so far this year.

Therefore, he said, the Fed must remain vigilant and will remain prepared to boost short-term interest rates to contain inflation.

While that prospect disturbed some investors, the effect appeared to wear off later in the day as the market focused more on individual corporate earnings and industries.

Among the market highlights:

* Technology stocks, pounded over the last week on worries about slowing sales, rebounded. Oracle jumped 2 3/8 to 49, Texas Instruments surged 2 1/4 to 73, Sybase leaped 2 to 73 1/2 and Motorola gained 2 1/8 to 86 3/4.

Also, BMC Software surged 5 5/8 to 56 1/8 after reporting a big jump in quarterly earnings. And communications system networker Newbridge Networks rocketed 5 to 50 3/4 after rival Tellabs reported better than expected quarterly results. Tellabs jumped 6 to 40 3/4.

* Cable TV stocks were higher after Tele-Communications Inc. told analysts that it won’t be hurt as badly as feared by federal cable rate rollbacks. TCI leaped 1 5/8 to 24 1/8, Viacom gained 7/8 to 58 3/8 and Comcast rose 1 1/8 to 25 5/8.

* Airlines rose on hopes of government tax breaks to bring the beleaguered industry out of the red. The drop in oil prices also helped. AMR, parent of American Airlines, rose 2 3/8 to 63 3/8; United Airlines parent UAL jumped 4 3/4 to 138, and USAir gained 1 to 15 7/8.

* Drug stocks, which have undergone yet another pounding over the last week, rallied a bit. Merck matched expectations and rose 1 1/8 to 33 1/4 after reporting quarterly operating earnings up 9%.

* Auto stocks picked up steam late in the day. Chrysler was up 1 5/8 to 46, Ford jumped 1 3/4 to 53 1/4 and GM gained 1 1/8 to 48 7/8.

* Companies gaining from strong earnings reports included Sears, up 4 1/8 to 50 1/8; Sprint, up 1 1/4 to 35, and Pepsico, up 7/8 to 36 3/8. But slot machine maker International Game Technology fell 1 3/4 to 34 7/8 on its earnings report.

* On the downside, many bank stocks were lower, despite reporting favorable earnings. Greenspan’s warning of a potential rise in interest rates may have hurt the banks, because higher rates would squeeze bank profit margins.

Mellon fell 1/2 to 55 3/4, BancOne dropped 1 to 54 1/2 and Nationsbank lost 7/8 to 49.

Overseas, Tokyo stocks continued their post-election slide. The Nikkei index lost 112.92 points to 20,038.00. In Frankfurt, the DAX index added 2.70 points to 1,839.99. In London, the FTSE-100 index sank 19 points to 2,823.9.

Credit

Short-term interest rates jumped on Greenspan’s assertion that the Fed will boost rates if inflation reappears.

The discount rate on three-month Treasury bills rose to 3.06% from 3.02% on Monday. The rate on one-year T-bills jumped to 3.33% from 3.26%.

Greenspan’s testimony appeared to mark another attempt to prepare financial markets for somewhat higher short-term interest rates--perhaps later in the year--if the economy begins to accelerate.

Yields on long-term bonds, meanwhile, were only slightly higher. The 30-year T-bond yield rose to 6.55% from 6.54% on Monday.

Greenspan said long-term rates have fallen sharply this year partly because financial markets expect real progress in reducing the federal budget deficit. He warned, “I fear should that expectation be thwarted, markets would respond in a negative fashion.”

Other Markets

Oil prices tumbled as traders lost confidence from the day before that OPEC was ready to deal with any new supplies from Iraq.

A rally Monday, sparked by news that the Organization of Petroleum Exporting Countries will hold an emergency meeting, fell apart after the cartel’s president said that only members that have been ignoring quotas should be expected to cut production.

On the New York Merc, light, sweet crude oil for August slumped 70 cents to $17 a barrel. Longer-term contracts fell about 40 cents.

Market Roundup, D6