FINANCIAL MARKETS : Yields Down as Dollar, Stocks End Mixed

Market Overview

Treasury bond yields declined moderately as investors reacted to further signs of a sluggish domestic economy.

* Stocks ended mixed ahead of more indications of the economy’s strength and on worries about congressional action on President Clinton’s deficit-reduction plan.

Credit

The yield on the Treasury’s key 30-year bond stood at 6.51% at the close, its lowest since the Treasury began regularly issuing bonds in the late 1970s and just below its previous low of 6.54%, reached two weeks ago. On Monday, the bond’s yield closed at 6.55%. The long bond’s price was up 17-32 point, or $5.31 per $1,000 in face value. Prices and yields move in opposite directions.

Economist Marshall B. Front, president of Stein Roe & Farnham Inc. in Chicago, said the market was buoyed by signs that a steady “sluggish business pattern” is emerging and that the economy will grow slowly.

On Tuesday, the Commerce Department reported that its index of leading indicators, the government’s chief economic forecasting gauge, rose by an anemic 0.1% in June. The National Assn. of Realtors, meanwhile, said home prices have continued to slide in California and the Northeast over the past year.

Bond prices tend to rise on reports of weakness in the economy, which often signal that inflation is in check. Inflation erodes the value of fixed-income investments.

The federal funds rate, the interest on overnight loans between banks, was 3.063%, down from 3.25% late Monday.

Stocks

The market traded in mostly negative territory for much of the day, with the Dow only turning up slightly toward the session’s end.

The Dow Jones average rose 0.28 points to 3,561.27 on Big Board volume of 253.11 million shares, up from 230.38 million on Monday. Advancing issues outnumbered declines by about 8 to 7 on the New York Stock Exchange.

Joseph DeMarco, managing director of equity trading at Marinvest, a unit of Hong Kong & Shanghai Bank, said stocks were caught in a struggle between anxiety over the economy on the one hand and falling interest rates on the other.

And the disappointing economic news didn’t help.

* Among active issues, Unisys rose 3/8 to 10 1/4. the company said it had joined with Intel to develop high-performance computers employing parallel-processing technology.

* Oil stocks followed the price of crude oil lower. Chevron fell 1 1/4 to 87 1/2 and Exxon lost 7/8 to 65 1/8.

Overseas, Frankfurt’s DAX average closed at 1,843.43, up 28.35. Tokyo’s 225-share Nikkei average gained 14.11 to end at 20,357.64. In London, the Financial Times average rose 3.3 to close at 2,945.0.

Other Markets

The dollar was mixed against major currencies in quiet trading as foreign exchange markets continued to adjust to the overhaul of the European Community’s exchange rate system.

Currency traders said the market was not affected by the lowering of Germany’s repurchase rate to 6.8% from 6.95%.

Although the dollar closed at another record low in Tokyo, it rose in New York, fetching 104.42 Japanese yen, up from its record U.S. low of 104.37 reached Monday.

The greenback fell to 1.707 German marks, down from Monday’s 1.709 marks.

In commodities trading, gold for current delivery fell to $403.40 an ounce, off $2.50 from Monday’s close. Silver for current delivery fell 7.4 cents from Monday to close at $5.369 an ounce.

Light sweet crude oil for September delivery fell 12 cents on the New York Mercantile Exchange to $17.85 a barrel.