FINANCIAL MARKETS : Bond Market Again Fearful of Inflation

Stocks ran in place for a third day Thursday as bond yields rose amid fears over today’s report on January wholesale inflation.

The Dow industrials eased 2.69 points to 3,932.68, though winners slightly edged losers on the New York Stock Exchange.

The bond market suffered a modest selloff after the U.S. Treasury completed its quarterly “refunding,” auctioning $11 billion in 30-year bonds at an average annualized yield of 7.65%.

Traders said the auction went reasonably well, with $29.97 billion in bids received.

The bond’s yield was up from the 7.56% average at the last 30-year bond auction, on Aug. 11 of last year. But the healthy bidding was another sign that many investors are confident that long-term interest rates are stabilizing after peaking near 8.2% in November.

Even so, traders pushed bond yields up across the board in late trading Thursday, hedging their bets ahead of today’s government report on January wholesale inflation. The current 30-year T-bond yield rose to 7.68% from 7.65% on Wednesday. The 2-year T-note yield jumped to 7.24% from 7.14%.

If the inflation number is higher than the 0.4% increase that analysts generally expect, it could spark new worries that the Federal Reserve Board will further tighten credit to slow the economy and keep inflation under control.

“The market is operating under the assumption that the economy is (already) slowing and inflation is not a problem, so anything that indicates inflation is a threat could cause a problem,” said Kevin Flanagan, a money market economist with Dean Witter Reynolds.

“I don’t think they wanted to take any chances,” Flanagan said of bond dealers who sold late in the day Thursday. “Some investors wanted to take profit and buck to the sidelines.” *

In the stock market, meanwhile, prices continued to churn, as they have all week. Some industrial issues that had sold off recently were bid up, while utility and bank stocks closed broadly lower on interest-rate jitters.

One area of sustained strength was technology, where many issues zoomed for a second consecutive session. Tech stocks had led the market in 1994 before slumping in January.

George Pirrone, Dreyfus Corp.’s senior trader, said he worries that the market doesn’t have enough leadership outside of the tech area.

“Once you get away from the tech stocks . . . the market begins to look a little ragged,” he said.

But other analysts disagree, noting that the Standard & Poor’s 500 index of blue-chip stocks, at 480.19, is barely below its all-time high of 482.00 reached a year ago.

Among Thursday’s highlights:

* Tech issues rising included Compaq, up 7/8 to 37 3/4; Intel, up 7/8 to 77 1/2; Micron Technology, up 2 1/2 to 50 3/8; Hewlett-Packard, up 2 7/8 to 106 1/8; Apple, up 1 5/16 to 43 5/8, and Texas Instruments, up 3 3/8 to 78 3/8.

Merrill Lynch had made positive comments about semiconductor stocks on Wednesday.

* Another tech-related winner was America Online, up 3 1/8 to 65 7/8 after reporting that second quarter revenues more than tripled.

* Industrial stocks rebounding included Alcoa, up 1 7/8 to 79 7/8; Deere, up 3/4 to 73 7/8; Black & Decker, up 1 1/4 to 25, and GM Hughes, up 1 3/8 to 36 1/2.

* Among financial and utility stocks giving ground were Citicorp, off 1/2 to 42 1/4; Detroit Edison, off 1/2 to 28 3/8, and American Electric Power, off 1/2 to 34 1/8.

* WMS Industries, a maker of pinball machines and other games, leaped 1 7/8 to 23 1/4. The company, once considered a potential takeover target for Viacom, declined to comment on the activity.

* One of the day’s big losers was restaurant chain Fresh Choice, which sank 3 1/2 to 8 3/4 after reporting disappointing quarterly earnings and warning that its expansion plans will slow this year.

In foreign trading, Latin American markets suffered another selloff related to ongoing investor jitters about Mexico’s financial crisis. In Mexico City, the Bolsa index lost 25.49 points to 1,935.32. Brazil’s Bovespa index fell 4.3% and Argentina’s Merval index sank 5.1%.

In Frankfurt, the DAX index rose 25.07 points to 2,112.69 while London’s FTSE-100 index jumped 26.5 points to 3,099.0. In Tokyo, the Nikkei-225 lost 190.70 points to 18,099.55.

Market Roundup, D6

Interest Rates:

30-year T-Bond: 7.68%

1-year T-Bill: 6.77%