FINANCIAL MARKETS : Stocks Finish Mixed as Yields and Gold Surge

Wall Street’s torrid rally succumbed Friday to a late surge in bond yields and another jump in gold prices.

The Dow Jones industrial average closed the week with a 31.07-point loss, to 5,373.99, after rising 157 points in a five-session run-up that began Jan. 26.

In the broad market, falling stocks outnumbered winners 1,273 to 1,076 on the Big Board. But winners kept the edge in the Nasdaq market, where the composite index gained 2.65 points to a record 1,072.11--finally topping the old high of 1,069.79 set Dec. 4.

All in all, some analysts were amazed at stocks’ resilience given the bond market’s bad day: The 30-year Treasury bond yield shot up from 6.07% on Thursday to 6.16% at Friday’s close, highest since Jan. 10.

Despite the government’s report that the national unemployment rate jumped in January, some bond traders chose to focus on data showing that hourly wages rose 0.5% for the month--sparking inflation worries.

Economists said the rise was a fluke, caused by the fact that many lower-wage workers were kept off the job because of bad winter weather in much of the country. That allowed high-wage workers still on payrolls to skew the overall pay number, analysts said.

Even so, some bond traders noted that wage inflation has been slowly accelerating since 1993 and has been running above a 3% annualized rate.

With the continuing surge in gold lately--historically a barometer of inflation trends--the bond market is paranoid about any data that suggests higher inflation might indeed be in the pipeline, experts say. Rising inflation erodes the value of bonds.

On Friday, gold futures for February rocketed $3.90 to $414.70 on the Comex in New York, a six-year high. For the week gold rose $8.90.

Yet many Wall Streeters argue that gold isn’t signaling higher inflation ahead, but rather is responding to a simple imbalance between rising demand for the metal in Asia and flagging mine production in much of the world.

The bond market, meanwhile, also has something else on its mind: The Treasury will auction $44.5 billion in new three-, 10- and 30-year securities next week. That heavy oncoming supply often depresses bond prices--and sends yields up--before the auction.

Michael LaTronica, analyst at Gruntal & Co. in New York, predicted that supply concerns will cast a shadow over bonds for the week, “and then we’ll come rallying back when we conclude we’ll get another [Federal Reserve Board] rate cut by mid-year.”

Indeed, shorter-term bond yields were unchanged or slightly lower on Friday despite the jump in long-term yields. The Fed, which cuts its official short-term rates by a quarter percentage point on Wednesday in response to the economy’s weakness, is widely expected to continue pushing short-term rates lower to keep the economy out of recession.

Wall Street bulls say that trust in the Fed is likely to continue to bolster stock prices, despite bonds’ jitters.

Among Friday’s highlights:

* Telecommunications-related stocks surged after Congress voted to deregulate the industry. Ortel jumped 1 7/8 to 14, General Instrument rose 1 5/8 to 25, Qualcomm gained 1 5/8 to 47 3/4 and Pacific Telesis rose 7/8 to 30 1/2. But AT&T; tumbled 1 5/8 to 64 3/4 and MCI Communications dove 1 1/8 to 28 on competition worries.

* Some industrial issues fell after rising earlier in the week in anticipation of the Fed’s rate cut. GM lost 1 5/8 to 52, DuPont sank 1 7/8 to 76 3/4 and Chrysler lost 2 to 56 7/8.

* Among banks, Wells Fargo rose 3 1/4 to a record 239, continuing to surge after its recent victory in a takeover fight for First Interstate.

* Gold stocks advanced again with the metal’s price. Barrick Gold gained 5/8 to 31 1/2, ASA jumped 1 to 49 5/8 and Placer Dome was up 1/2 to 30.

In foreign markets, Mexico’s Bolsa index hit another record, adding 23.71 points to 3,101.92.