The bond market sold off Thursday after an early rally, as Federal Reserve Board Vice Chairman Alan Blinder cast doubt on prospects for an interest rate cut soon.
But the stock market still closed higher, though generally below its peak levels of the day. The Dow industrial average added 5.19 points to a record 4,496.27 after topping 4,500 at midday.
Bond yields fell early in the day after the Fed said the nation's industrial output dropped in May for the third straight month--the first time that has happened since the recession of 1991.
The report seemed to add new weight to arguments that the Fed should cut short-term interest rates to help the economy revive.
But Blinder, who last week had hinted that he might lead the fight for lower rates when the Fed meets July 5, on Thursday said that the economic slowdown will be temporary and that he expects "something close to normal growth" will follow.
That sparked selling in the bond market. The yield on the two-year Treasury note, which fell from 5.68% on Wednesday to 5.64% early Thursday, rebounded to close at 5.73%.
The yield on the 30-year T-bond closed at 6.60%, up from 6.57%.
"People are saying, 'Well, if the Fed's not going to ease' " it may be time to sell bonds, said Andrew Brenner, a trader at Nomura Securities International.
Still, bonds' selloff was modest. Some traders were surprised it wasn't worse, especially given that another jump in grain prices spurred inflation worries.
Grains' rise helped drive July gold futures up $3.30 to $392.60 an ounce on the Comex.
In the stock market, activity was affected somewhat by technical trading related to today's "triple witching" quarterly expiration of stock options, index options and index futures.
Winners topped losers by 12 to 10 on the New York Stock Exchange in active trading.
Once again, technology issues led the market higher. The Nasdaq composite index, heavily weighted with tech issues, soared 6.96 points to a record 902.68, its first close above the 900 mark.
The Nasdaq index has rocketed 20% so far this year, compared to the Dow's 17.3% rise.
"High-tech shares are still growth stocks," said Jack Shaughnessy, director of research at brokerage Advest Inc. "Investors want to own strong-growing companies because they are the best antidote in a declining economy."
Among Thursday's highlights:
* Tech stocks scoring strong gains included Intel, up 2 5/8 to 115 1/8; Hewlett-Packard, up 2 to 72 5/8; FileNet, up 1 3/4 to 39; Texas Instruments, up 5 3/4 to a record 129 1/4, and Digital Link, up 2 3/8 to 28.
* Consumer growth stocks were also broadly higher. Colgate-Palmolive jumped 1 1/4 to 76 3/4, Procter & Gamble added 5/8 to 72 1/2, Philip Morris surged 1 7/8 to 72 3/4 and Nike leaped 1 7/8 to 83 3/8.
* On the downside, paper and wood stocks fell after analysts interpreted May box shipment numbers as weak, threatening the companies' earnings. Brokerage Morgan Stanley downgraded six stocks based on those numbers.
International Paper slid 1 1/8 to 79 3/8, Georgia Pacific fell 1 7/8 to 79 1/8, Weyerhaeuser dropped 1 7/64 to 44 41/64 and Stone Container lost 1 to 18.
* Toolmaker Stanley Works warned that its current-quarter earnings will be lower than expected because of slowing sales. Stanley's shares tumbled 2 3/8 to 38, and Black & Decker fell 1 7/8 to 30 1/8 in sympathy.
* Among Southland issues, Vons dropped 1 3/8 to 20 1/2 after competitor Ralphs said it will cut prices in some stores.
Elsewhere, the dollar ended mixed in advance of the meeting of the heads of the Group of Seven industrial nations.
In foreign markets, Mexico's Bolsa stock index gained 10.30 points to 1,996.16, and Tokyo's Nikkei-225 rebounded 206.77 points to 14,867.26.