Stocks Climb Warily Higher; Yields Steady

Stocks struggled higher Tuesday, erasing more of July’s pullback, as interest rates held firm in the bond market despite a new round of heavy government borrowing.

But trading was slow and cautious for the second straight session as investors found few incentives to bid an increasingly pricey market back into record territory.

The Dow Jones industrial average rose 21.83 points to 5,696.11, having recovered from an early 26-point deficit and briefly moving above 5,700 for the first time since early July.

In just three weeks, the blue-chip barometer has snapped back by more than 500 points from the depths of last month’s sell-off, and is now less than 82 points from its record high at 5,778.00, set May 22. Similarly, the Standard & Poor’s 500-stock index, up 2.15 points to 662.38, is also back within range of its all-time best finish.

The more speculative sectors of the market still remain well below their highs, but the sudden return to near-record levels for blue-chip issues has started to slow the market’s momentum. While investors prefer the security of well-established companies, they are growing hesitant about continuing to jump back into the market at levels considered pricey just a month ago.

“The basic problem is that the stock and bond markets have done well in the last few days and there’s not that much stimulus to keep them going,” said A. Marshall Acuff Jr., market strategist at Smith Barney. “All the volatility has been on shifting perceptions. The market’s underlying fundamentals haven’t changed.”

Tuesday, investors focused on the start of this week’s three-day auction of new U.S. Treasury debt.

The quarterly government refunding, fairly large at $39 billion, prompted the usual concerns over how well the Treasury market will absorb the new notes and bonds. But the first phase, Tuesday’s auction of $19 billion in three-year notes, failed to erode last week’s gains in bond prices or send interest rates higher.

The yield on the 30-year Treasury bond--a key determinant of corporate and consumer borrowing costs--eased to 6.75% from 6.76% on Monday, heartening stock investors who’ve been envisioning lower operating costs and rising revenues after last week’s pullback in long-bond interest rates.

Advancing issues outnumbered decliners by 10-9 margin on the New York Stock Exchange, where volume totaled 347.22 million shares as of 4 p.m., easily exceeding Monday’s sluggish pace, the second slowest all year.

The Nasdaq composite index rose 8.34 points to 1,128.87 as several leading technology names continued to improve and outperform smaller companies hurt in last month’s sell-off. Microsoft rose 2 1/4 to 124 and Intel rose 1 5/8 to 79 3/4.

Among Tuesday’s highlights:

* Sun Microsystems lost 2 3/8 to 53 1/4. Donaldson, Lufkin & Jenrette downgraded the stock to underperform from market perform, a DLJ source said.

* Wallace Computer fell 2 5/8 to 27 3/4 after Moore Corp. said it decided not to proceed with its $1.3 billion offer for Wallace. The hostile bid had previously been rejected by Wallace, which also sued Moore alleging antitrust violations.

* Fay’s added 3/8 to 12 1/4 after agreeing to be acquired by J.C. Penney for $12.75 a share in Penney stock in a deal valued at $285 million. Penney fell 1 3/8 to 51 5/8.

* ImmunoGen climbed 2-1/16 to 5-5/16 after the company said its experimental compound C242-DM1 eradicated human colon tumors grown in mice.

Mexican stocks closed above the 3,200-point level on Tuesday for the first time since late June, lifted by gains on Wall Street and expectations of a big fall in interest rates. The Bolsa index rose 28.90 points, or 0.91%, to 3,206.78. Tokyo’s Nikkei stock average fell 1.6%, Frankfurt’s DAX index rose 0.1%, and London’s FTSE-100 edged higher.

Oil prices eased Tuesday as a United Nations plan to allow Iraqi crude sales in return for imports of food and other humanitarian supplies looked close to clearing its last major hurdle.

At the New York Mercantile Exchange, September crude oil closed 10 cents a barrel lower at $21.13. September heating oil closed 0.86 cent a gallon lower at 57.43 cents and September unleaded gasoline was down 0.08 cent at 61.23 cents.

Jockeying of trading positions ahead of weekly oil stocks data issued by the American Petroleum Institute also affected prices. The data later came in as most traders expected.

After the close of trading, API said U.S. crude oil stocks fell 2.94 million barrels in the week ended Aug. 2 to 309.62 million barrels, gasoline stocks fell 1.43 million barrels to 197.73 million from 199.16 million, and distillate or heating oil stocks rose 256,000 barrels to 103.93 million.

Market Roundup, D7