Your Money : FINANCIAL MARKETS : Sunny Outlook Rains on Bond Parade

News of a surprising surge in consumer optimism this month prompted a broad selloff in the U.S. bond market Tuesday, driving yields sharply higher for the first time in four sessions.

The stock market, however, mostly shook off the bond market’s nervousness. The Dow industrials eased just 5.53 points to 4,151.81 after surging 70 points the past two sessions. And most broader market indexes closed higher.

Bonds’ bad day was fueled by the Conference Board’s report on consumer confidence. An uptick in confidence seemed to contradict recent data suggesting that the economy is slowing significantly this year.

The report was released as the Federal Reserve Board was meeting in Washington. As expected, the Fed decided to leave short-term interest rates unchanged, awaiting more data to confirm that the economy is slowing to a more sustainable--and low-inflation--growth rate.

In the bond market, the yield on the Treasury’s key 30-year bond shot up to 7.39% at the close from a nine-month low of 7.31% on Monday. Shorter-term yields also jumped.

Also Tuesday, the government auctioned new two-year Treasury notes at an average yield of 6.72%. Traders were disappointed by a lower-than-expected level of purchases by individual investors.

In addition to the consumer confidence report, the bond market was rattled by the afternoon release of the Johnson Redbook Service report, which showed national retail sales up 1.3% in the first four weeks of March from February’s level.

Investors fear that additional evidence of economic strength could kill chances for an economic “soft landing,” forcing the Fed to raise interest rates again to slow business activity.

But if bonds were perturbed, stocks paid scant attention. Several broad stock measures continued to advance to record highs. The New York Stock Exchange composite index crept ahead 0.20 point to 271.92, the Standard & Poor’s 500-stock index climbed 0.70 point to 503.90, and the Nasdaq Stock Market composite rose 3.51 points to 826.14.

Gainers and losers ended the session almost even on the NYSE.

“I don’t think the rally’s over,” said Timothy Straus, manager of institutional sales at Hancock Institutional Equity Services in Boston. “It’s smelling like a blow-off.”

Among Tuesday’s highlights:

* Takeover and restructuring announcements helped boost stocks. Apparel retailer Limited gained 2 3/8 to 22 after the company announced a restructuring plan. Also, Teledyne jumped 3 7/8 to 26 5/8 on news it may sell itself.

* Biotech stocks surged back into the limelight as investors hunted for growth stocks. Amgen gained 1 3/8 to 69 3/8, Biogen jumped 3 to 42 and Centocor gained 1 1/4 to 16 3/8.

* Dow Chemical shot up 2 5/8 to 71 7/8. A judge in a Houston breast implant trial reversed a jury’s verdict and ruled that the company isn’t liable for damages.

* Adobe Systems gained 3 to 50 1/4. The technology company formed an alliance with IBM to develop printing and publishing systems.

But Apple Computer fell 2 13/16 to 34 3/8 after its investment rating was lowered to “underperform” by Salomon Bros.

Overseas markets were mixed. Tokyo stocks shot up after a report that the Bank of Tokyo and Mitsubishi Bank had agreed to merge. The 225-share Nikkei average index closed up 585.48 points, or 3.64%, at 16,681.73. In Frankfurt, the DAX 30-share average ended 35.94 points lower at 1,910.96, while London’s FTSE-100 average lost 21.5 points to end at 3,128.3.

Elsewhere, the dollar tumbled against the Japanese yen and the German mark after the Fed decided against raising interest rates. The dollar closed in New York at 88.90 yen and 1.388 marks, down from 89.45 yen and 1.406 marks on Monday.

Market Roundup, D6

* MUTUAL FUND TRENDS: Investor purchases of stock and bond funds slow. D11