Bond yields fell and stocks rose modestly Friday as news of mild inflation for the second straight day relieved market worries that the economy is growing too fast.
But the Federal Reserve Board is still expected to raise interest rates next week, and this gave the dollar a boost against major foreign currencies.
The market, which has been obsessed with inflation, cheered when the government reported a meager 0.1% rise in April consumer prices, below the 0.3% expected. That followed news Thursday of an unexpected 0.1% drop in April producer prices.
But waves of bond selling eroded an early-day surge in prices.
"The bear market psychology to sell is very much evident in reactions to the data today. It's very much a tug of war," said Dana Johnson, head of market analysis at First Chicago Capital Markets in Chicago.
By day's end, the yield on the Treasury's bellwether long bond fell to 7.49% from 7.55% on Thursday. Its price, which moves in the opposite direction, was up 19/32 point, or $5.94 per $1,000 in face value.
But analysts still expect the inflation-wary Fed to raise short-term interest rates at its policy-making Federal Open Market Committee meeting Tuesday.
"The story is future inflation. The data might have a modest impact on deliberations, but the Fed is more worried about capacity use, employment and the GDP gap," said Cary Leahey, senior economist at Lehman Government Securities.
On Wall Street, the Dow Jones industrial average finished up 6.84 points at 3,659.68, but it posted a loss of 9.82 for the week. In the broader market, declining issues narrowly exceeded gainers on moderate volume of 252.08 million shares.
The technology-weighted Nasdaq composite fell 2.69 points to 716.92.
The market was hit by a slump in computer networking company shares sparked by Wall Street disappointment over Cisco Systems' quarterly results released Thursday. Cisco fell 5 3/32 to 23 1/4.
But many investors chose to hold their bets until the interest rate picture cleared.
Among the market highlights:
* Other computer networking stocks were hammered after Cisco's results were announced. Wellfleet Communications dropped 8 to 63 1/2, Cabletron Systems sank 2 1/2 to 93 1/2, 3Com shed 1 5/8 to 55 and Compaq lost 1 to 104 3/8.
* Microsoft was among the few strong performers in technology, rising 2 to 96 1/2 on news it will replace Syntex Corp. in the Standard & Poor's 500 index.
* EMC fell 1 1/4 to 15 5/8. Analysts were reportedly disappointed when the company indicated that production of its new mainframe disk storage systems will be slower than expected.
* Philip Morris gained 1 5/8 to 52 1/8, adding to Thursday's 3-point rise on speculation that the company's May 25 board meeting will bring a spinoff of its tobacco unit.
* Countrywide Credit, which is said to be an attractive takeover target, rose 2 1/4 to 16 1/8.
* Southwest Airlines fell 1 7/8 to 25 3/8 and AMR, parent of American Airlines, fell 2 3/8 to 53 1/4.
Stocks were mixed in overseas markets. In Europe, Frankfurt's DAX-30 average ended the week at 2,258.75, up 15.12 points, while London's Financial Times 100-share average fell 18.6 points to 3,119.2.
In Asia, Tokyo's 225-share Nikkei closed up 46.51 points at 20,270.75 and Hong Kong's Hang Seng index jumped 255.86 points to finish the week at 9,134.72.
Mexico's Bolsa index rose 4.47 points, or 0.2%, to close at 2,240.17.
Meanwhile, the dollar advanced against most major currencies, rising with the bond market.
The dollar rose to 1.670 German marks and 105.05 Japanese yen in late New York trading, from 1.667 marks and 104.30 yen Thursday.
Scott Gallopo, chief currency trader at Chemical Bank, said: "We traded off the bond market today. Every currency trader has his bond page up, and when bonds get hit, so does the dollar."
"People are looking for clues in the bond and equity markets. For every move in those markets, people are buying and selling dollar-denominated assets. The markets are very closely linked."
Elsewhere, gold settled at $380.70 an ounce, up 80 cents on the New York Comex, while silver fetched $5.40, up 4 cents.
Market Roundup, D4
Selected Interest Rates
Averages of daily rates ended Thursday, in percent.
Corporate AAA bonds: 8.11%
90-day CDs: 4.69%
3-month Treasury bills: 4.24%
Bank prime rate: 6.75%
Municipal bonds: 6.18%
Federal funds rate: 3.70%
Discount rate: 3.00%
Source: Federal Reserve Board