FINANCIAL MARKETS : Bond Yields Jump on Slow Trading Day

Blue-chip stocks slumped for a third straight session Friday, depressed by rising bond yields and a stronger dollar.

But trading was slow, even for a summer Friday.

The Dow Jones industrial average slid 25.36 points to 4,618.30, bringing its loss for the week to 65.16 points and leaving the closely watched index at its lowest level since July 5.

Falling stocks outnumbered winners by 13 to 8 on the New York Stock Exchange, as just 266 million shares changed hands.

The government reported that retail sales fell 0.1% in July, an unexpected decline. Some traders said that sparked concern that the economy isn’t recovering quickly enough to forestall an expected slowing in corporate earnings in the second half of the year.

“The market is wrestling with how much corporate profit growth can we expect between now and the middle of 1996, given the pace of economic growth,” said Jim Weiss, chief investment officer of IDS Equity Advisors.

The Dow was off more than 40 points at midday before recovering in the final hour.

Analysts said the weak retail sales report might not have been viewed negatively on Wall Street if bond yields had fallen on the news. Instead, yields jumped sharply, unimpressed with another government report showing that consumer prices rose just 0.2% in July--indicating inflation is still under control.

Bond traders said the market had trouble digesting the $42.5-billion in 3-, 10- and 30-year bonds the Treasury auctioned this week. Dealers bought many of those bonds in the hope that investors would emerge for them, but bidding was weak Friday.

As a result, the yield on the 30-year T-bond rose to 6.97% from 6.94% on Thursday, nearing the 7% level for the first time since July 21.

Yields on shorter-term issues were up more sharply. The two-year T-note yield surged to 6.08% from 5.96% on Thursday, topping 6% for the first time in several months.

Meanwhile, the dollar’s persistent strength continued to surprise traders. The dollar jumped to 1.438 German marks in New York from 1.419 on Thursday after Johann Wilhelm Gaddum, deputy president of the German central bank, again raised the possibility of German interest rate cuts.

The dollar also surged to a five-month high of 93.62 Japanese yen from 92.57 on Thursday.

While the rising dollar should bring more foreign investment to the United States, traders said in the short run that it may be a negative for the stock market because overseas profits of major U.S. multinational companies may be crimped by the stronger currency.

Among Friday’s highlights:

* The dollar’s gains may have hurt a number of Dow index stocks, including Walt Disney, down 1 3/8 to 56 1/2; Coca-Cola, down 3/4 to 66; Philip Morris, off 1 1/2 to 72, and International Paper, which lost 1 to 81 3/8.

* On the plus side, semiconductor stocks rose after the industry’s trade group reported record orders in July. Intel gained 1 7/8 to 66 1/8, Texas Instruments jumped 2 to 149 1/2 and Motorola advanced 1 3/8 to 76 3/4.

Gains in many other tech issues helped push the Nasdaq composite index up 3.50 points to 1,004.11, despite the Dow’s decline.

* Oil shares fell amid concern that third-quarter earnings won’t be as strong as the second quarter’s because of weak oil and natural gas prices and poor refining profit margins.

Exxon fell 5/8 to 69 3/8, Mobil fell 1 1/4 to 96 1/8 and Atlantic Richfield slid 1 5/8 to 111.

In overseas trading, the Nikkei-225 index in Tokyo rose 63.37 points to 16,792.34 as the dollar gained.

In Mexico City, the Bolsa index dropped 37.87 points to 2,532.65 in renewed profit taking.