Your Money : FINANCIAL MARKETS : Yields Fall; Dollar Rises Despite Report

Bond yields continued to slide Tuesday, as market optimism intensified ahead of Federal Reserve Chairman Alan Greenspan’s congressional testimony.

At the same time, the dollar rose strongly despite news that the U.S. trade deficit widened in May.

On Wall Street, selling of some banking and technology stocks kept pressure on the broad market despite the ongoing bond rally. The Dow Jones industrials eased 7.12 points to 3,748.31.

In the credit markets, the Treasury’s key 30-year bond yield fell to 7.46% from 7.50% on Monday; shorter-term yields also declined.

The T-bond yield has been dropping steadily from its recent peak of 7.73% on July 11.

Greenspan is to appear before a Senate panel today and Friday with updates on Fed economic and monetary policy. Recent reports suggesting that the economy slowed in the first half of this year have convinced many analysts that the Fed won’t raise short-term rates again before late August at the earliest.

That sentiment has recently increased investors’ willingness to buy bonds.

“The tone of the market has turned constructive,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis.

Meanwhile, in the currency market, rumors of unrest in North Korea provided a reason for technically motivated traders to exchange Japanese yen for dollars, currency dealers said.

“Rumors started the ball rolling, but people were already looking to buy dollars for technical reasons,” said Zlatko Glamuzina, chief dealer for the New York branch of Banco di Sicilia.

Though the Commerce Department reported a widening of America’s overall trade deficit in May--to $9.17 billion from $8.5 billion in April--the U.S. deficit with Japan narrowed nearly 20% to $4.4 billion.

Some analysts were doubtful, however, that the deficit figure represented a turning point in America’s longstanding trade imbalance with Japan.

Still, currency dealers cheered the trade report, pushing up the dollar in New York to 99.25 Japanese yen from 98.35 on Monday. The dollar also gained against the German mark, to 1.568 marks from 1.547 on Monday.

On Wall Street, stocks were mostly lower amid a flood of quarterly corporate earnings reports.

In the broader market, retreating issues outnumbered advancing ones 9 to 8 on the NYSE.

Stocks traded in a narrow range throughout the day as investors reacted to earnings reports from some of the largest companies.

GTE Corp., General Electric, Sprint, TRW and Amgen were among those posting better-than-expected earnings, and their stocks rose accordingly.

“Earnings are coming in just about right, and there have been some nice positive surprises,” said Bill Allyn, managing director at Jefferies & Co.

But concern about earnings in certain sectors, particularly banking and technology, kept a lid on the market.

Computer chip giant Intel, for example, announced earnings late Monday that were in line with expectations. But the company also said its profit margins shrank. The stock fell 1 5/8 to 57 on Tuesday.

Chase Manhattan’s strong earnings report also was overshadowed by its remarks about tighter competition in the banking business. Chase shares slid 2 3/8 to 36 3/8.

Among other market highlights:

* Technology stocks losing ground with Intel included software firm Lotus Development, which dropped 5 5/8 to 33 1/8 after saying that product delays and pricing pressure hurt its second-quarter results.

Also, computer maker Compaq, which is scheduled to announce earnings today, fell 1 1/4 to 33 1/4 in heavy trading.

Other losers included Computer Associates, down 7/8 to 40; Cirrus Logic, off 3 5/8 to 27 5/8; Powersoft, down 4 to 50 3/4, and IBM, off 1 1/4 to 55 5/8.

* Banking stocks hit by selling included Signet, which sank 4 3/8 to 36 1/2 on its earnings report. Among other falling issues, Citicorp dropped 1 1/4 to 40 3/4, First Chicago eased 1 1/8 to 48 7/8 and BancOne lost 1 to 33 1/8.

But California banking issues were mixed, as many California institutions reported strong quarterly earnings. First Interstate eased 7/8 to 78 and Wells Fargo slipped 1 1/4 to 157 1/2, but Ahmanson inched up 1/8 to 20 1/8 and Union Bank was unchanged at 29 1/2.

* Southland-based biotechnology giant Amgen jumped 2 1/8 to 48 7/8 after its strong earnings report prompted several Wall Street brokerages to upgrade their ratings on the stock.

* Merrill Lynch retreated 7/8 to 36 1/4 after reporting second-quarter earnings of $1.18 a share, compared to $1.52 in the equivalent three months of last year. That was below market expectations of $1.36 a share for the period.

* PepsiCo was unchanged at 30 1/2. The company said second-quarter profit rose 5%, a sub-par performance that reflected lagging profits from the company’s restaurants and beverage businesses abroad.

Overseas, Frankfurt share prices rose sharply in the last few minutes of trading, as players covered short positions. The market mood was buoyed by hope for a Bundesbank rate cut Thursday. The 30-share DAX average closed 30.60 points higher at 2,128.79.

Tokyo’s 225-share Nikkei average ended 57.52 points higher at 20,775.16; London’s Financial Times 100-share average rose 9.3 points to 3,091.3.

In Mexico City, the Bolsa index finished 18.96 points lower at 2,255.30.

In U.S. commodity trading, corn and soybean futures fell to new contract lows Tuesday on favorable weather and a government report that painted a rosy picture for both crops.

In other markets, copper futures reached contract highs and coffee cooled off as traders took profits from the recent jump in prices from damaging weather to Brazil’s crop.

Oil prices closed mostly higher.

Market Roundup, D8