FINANCIAL MARKETS : Japan Slashes Rates; U.S. Stocks Mixed

Japan’s central bank halved its key interest rate early today to a record low 0.5% in another dramatic attempt to stir the nation’s stumbling economy.

Japanese stocks rocketed after the cut was announced. Tokyo’s Nikkei stock index was up 713.32 points, or 4.1%, to 18,334.50 in afternoon trading, after finishing virtually unchanged on Thursday.

In U.S. markets on Thursday--before the Japanese move was announced--stocks finished mixed as bond yields rose. The Dow industrials fell 14.09 points to 4,669.72, though smaller stocks continued to advance.

The Bank of Japan said its decision to lower its discount rate from 1% to 0.5% reflected worries that Japan’s economic stall may be prolonged. The Economic Planning Agency warned today that Japan’s economy has worsened recently.

Industrial production data released last week showed a 2.4% drop in July, the fourth straight month of decline.

Japan’s four-year economic slump, following a roaring expansion in the late 1980s, has also caused a plunge in property values that has led to a string of bank and credit union failures.

The discount rate is the rate Japanese banks pay to borrow from the Bank of Japan. It also influences other short-term rates in the nation’s economy.

Although lower rates may help ease problems for some troubled Japanese borrowers, some economists questioned how much the latest rate cut can do for the economy overall. Even at 1%, the discount rate was already the lowest among the world’s major economies.

Analysts said the rate cut marks another effort by Japan to cut the yen’s value relative to the dollar. Lower Japanese rates should force more Japanese investors to invest overseas for higher returns, exporting capital and weakening the yen. A weaker yen, in turn, would help Japanese exporters regain some of their competitive edge.

In Tokyo today the yen indeed weakened further, falling to 99.50 to the dollar from 98.98 at the New York close on Thursday.

In Washington on Thursday evening, the Clinton Administration--which had been pressing the Japanese to do more to stimulate their economy, and which has made clear in recent months that it favors a stronger dollar--was quick to praise the rate reduction.

“We welcome the action taken by the Japanese authorities to ease monetary conditions,” Treasury Secretary Robert Rubin said in a brief statement issued shortly after the rate cut was announced in Tokyo.

Meanwhile, on Wall Street on Thursday major stock indexes closed mixed. Although the Dow slipped, the Nasdaq composite index continued its winning streak, adding 6.80 points to a record 1,051.08.

Winners topped losers by 21 to 17 on the Nasdaq market and by 12 to 10 on the NYSE. Trading activity was modest.

Analysts said stocks may have been restrained somewhat by weakness in bonds. The 30-year Treasury bond yield edged higher, closing at 6.60% from 6.58% on Wednesday despite a bullish report on U.S. corporate productivity gains.

But analysts noted that the latest cut in Japanese interest rates could be bullish for U.S. bonds, and may allow the Federal Reserve Board to reduce U.S. interest rates later this year.

Among Thursday’s highlights:

* Technology stocks ended mixed, but with enough strength to boost the tech-heavy Nasdaq market.

Intel gained 2 1/2 to 65, Apple rose 1 to 44 3/4, Cadence Design surged 1 5/8 to 39 1/8 and Davidson Associates leaped 2 5/8 to 29.

But IBM tumbled 1 3/8 to 99 3/8, also pushing the Dow industrials lower, in the wake of the resignation of Jerome York as the company’s chief financial officer.

* Many biotechnology stocks staged a fresh rally. Amgen rose 1 to 49 1/4, Cephalon surged 1 7/8 to 28 and Chiron gained 3/8 to 94 7/8.

* Some transportation stocks also were strong. CSX rose 1 1/8 to 87 1/8, Burlington Northern jumped 1 3/8 to 75 3/8 and Continental Airlines A shares added 1 to 32 3/4.

* Profit-takers hit some bank stocks. J.P. Morgan lost 1 to 72 5/8, Mellon dropped 1 3/8 to 45 1/2 and Citicorp slid 7/8 to 66 1/4.

Brokerage stocks also were broadly lower. Morgan Stanley fell 2 3/8 to 88 3/4, Merrill Lynch sank 1 3/8 to 58 7/8 and Bear Stearns tumbled 1 3/8 to 20 1/4.

In foreign trading, London’s FTSE 100 index, which closed at a record level of 3,557.7 on Wednesday, ended 12.1 points lower at 3,545.6.

In Mexico, the Bolsa index ended up 9.84 points at 2,610.93.