Stocks Mixed, Yields Decline; Dollar Surges

The bond market rallied for the sixth straight session Tuesday, as investors demonstrated more confidence that the Federal Reserve Board won’t raise interest rates soon.

But on Wall Street, stocks again closed mixed, with blue chips gaining while smaller stocks weakened. The Dow industrials gained 27.32 points to 6,833.48.

In currency markets, the dollar staged another strong rally.

Bond yields traded in a narrow range for much of the day, then fell in the final hour of trading. The yield on the bellwether 30-year Treasury bond sank from 6.74% on Monday to 6.70% on Tuesday, the lowest since Jan. 1.

Bonds’ rally occurred against the backdrop of the Fed’s meeting in Washington. The central bank’s policy-makers will continue meeting today and are widely expected to leave benchmark short-term interest rates unchanged.

“We’re seeing moderating growth and minimal inflation. That has granted the Fed a respite here,” said Robert Smith of Smith Affiliated Capital Corp., which manages $1.25 billion in bonds.

Yet the Commerce Department reported Tuesday that new-home sales dropped a smaller-than-expected 1% in December, reinforcing some investors’ concerns that the pickup in the economy late last year could aggravate inflationary pressures such as labor shortages and rising wages.

But also Tuesday, the Conference Board research group reported that its index of future economic activity advanced just 0.1% in December.

With signals mixed, bond bulls still held sway. But in the stock market the mood remained uncertain, after January’s big rally.

The Dow’s gain Tuesday left it just 50 points shy of Jan. 21’s all-time best close of 6,883.90.

What’s more, the Standard & Poor’s 500 index and the New York Stock Exchange composite both inched up to record highs.

But falling stocks edged winners on the NYSE and on Nasdaq. And the Nasdaq composite index dipped 2.30 points to 1,373.75.

Among Tuesday’s highlights:

* Much of the Nasdaq market’s decline resulted from growing jitters about growth in the computer networking sector. Cisco Systems fell 1 1/8 to 67 1/8 in advance of its quarterly earnings report, which came out after the close of trading and slightly exceeded expectations.

Whether that will be enough to turn sentiment in the networking sector remains to be seen. Other networking companies that have reported disappointing results in recent weeks were hammered again on Tuesday, including 3Com, down 3 1/4 to 58 3/4; Cascade Communications, down 1 3/8 to 37 3/4; and Xylan, down 6 1/2 to 22.

* Other stocks responding poorly to earnings reports included PepsiCo, down 1 1/4 to 32 7/8, and WMX Technologies, down 3 1/8 to 33. But Colgate-Palmolive gained 2 5/8 to 98 7/8 on its report and Gannett’s earnings boosted its stock 3/4 to 77 1/4.

* Banks and other financial companies sparked the afternoon rebound amid optimism that the Fed will stand pat on interest rates. Chase Manhattan rose 2 1/2 to 96 1/4, Citicorp gained 1 to 119 3/8, NationsBank rose 1 3/8 to 111 3/8 and Merrill Lynch was up 1 to 85 3/4.

* Investors were somewhat kind to two initial public offerings. Circuit City’s CarMax unit rose 1 1/8 to 21 1/8 from its offering price of 20. Another IPO, Vail Resorts, was priced at 22 and closed at 22 1/2, after rising as high as 24 1/2.

In currency markets, the dollar climbed for a second day against the yen and German mark after officials in Japan and the United States suggested they don’t oppose its continued rise.

The dollar rose to 122.44 yen in New York, up 0.76 yen from Monday. Early today in Tokyo it crossed the 123 yen mark, reaching its highest level in four years.