FINANCIAL MARKETS : Bond Yields Rise Again on Fed Speculation; Dow Slips

Bond yields advanced for a second straight day Thursday amid speculation that the Federal Reserve Board will keep interest rates steady for now. The rise had little effect on stocks, which closed mixed.

On Wednesday, Fed Chairman Alan Greenspan raised the possibility of a brief recession but said a prolonged downturn is unlikely, which bond traders interpreted as an indication that the Fed will stay pat on rates.

The benchmark 30-year bond rate rose 0.05 percentage point to 6.61% from 6.56% on Wednesday. Its price, which moves in the opposite direction, matched its decline from Wednesday, dropping 23/32 point, or $7.19 per $1,000 in face value.

The dampened optimism for a rate decrease--the Fed’s prime weapon for stimulating economic growth--triggered wide selling of bonds that had been bought in recent weeks.

The Treasury securities had been purchased on the assumption that a rate drop would boost the value of already-bought bonds and notes, which pay a fixed rate of return.

Also spurring some selling Thursday was nervousness that today’s release of May figures on inflation at the wholesale level would show an unexpectedly large increase.

Many economists expect a modest increase of 0.3%. A larger-than-expected jump in wholesale prices, it was feared, could create big losses for investors who have stocked up on bonds in recent weeks, analysts said.

Yields on three-month Treasury bills edged up to 5.77% as the discount increased 0.01 percentage point to 5.60%. Six-month yields rose to 5.80% as the discount went up 0.05 percentage point to 5.55%. One-year yields rose to 5.78% and the discount rose 0.05 percentage point to 5.46%.

Stock investors kept to the sidelines ahead of today’s release of inflation data.

The Dow Jones industrial average slipped 3.46 points to 4,458.57, its second drop in four trading sessions.

In the broader market, declining issues edged out advancers on the Big Board, where volume was light.

Meanwhile, the New York Stock Exchange’s composite index fell 0.51 point to 286.45, and Standard & Poor’s 500-stock index declined 0.78 point to 532.35.

But the Nasdaq composite index rose 4.55 points to 886.13, breaking through its record high set Monday.

Among Thursday’s highlights:

* The Dow was led lower by Philip Morris, which fell 1 1/2 to 71 1/2 after the New York Times reported that the company has engaged in long-term studies of the effect of nicotine on the body, despite the company’s claim that nicotine should not be regulated under the same standards as drugs.

* Philip Morris was followed by DuPont, down 1/2 to 67 3/8, and Eastman Kodak, down 3/4 to 59 1/8.

* Caterpillar, another Dow component, rose 1 1/4 to 62. The construction machinery maker raised its dividend Wednesday.

* Aetna Life rose 1 7/8 to 61 3/4. The company is considering selling as much as 20% of its property-casualty business in preparation for spinning off the entire unit, according to a published report.

* LaserMaster Technologies fell 3/4 to 5 1/2 after the company said it sees a modest net loss for the fourth quarter.

* Lehman Bros. said it downgraded Consolidated Freightways and TNT Freightways to “outperform” from “buy.” Consolidated Freightways fell 1 1/8 to 21 1/4 and TNT fell 1/8 to 18 5/8.

* Alex. Brown said it also downgraded Consolidated Freightways and Werner Enterprises Inc. to “buy” from “strong buy” and downgraded U.S. Xpress Enterprises Inc. and PST Vans Inc. to “neutral” from “buy.” Werner Enterprises fell 1 1/16 to 17 7/8, PST shed 4 5/8 to 7 1/4 and U.S. Xpress fell 1/2 to 9 1/4.

Semiconductor stocks extended recent gains. Intel rose 11/16 to 113 13/16.

Tokyo’s Nikkei 225-share average lost 237.32 points to end at 15,442.30. In Frankfurt, the 30-share DAX average fell 10.10 points to 2,130.97, while London’s FTSE-100 average climbed 10 points to 3,380.8.

Mexico’s Bolsa index declined 10.07 points to 1,979.73.