Bond Yields at 4-Year Low; Stocks End Mixed

The rush into bonds turned into a stampede on Friday, sending long-term Treasury yields to their lowest levels in four years as some investors bet on deflation, rather than inflation, ahead.

Meanwhile, stocks finished mixed, ending a tumultuous week that recorded heavy losses on fears that Asia’s economic woes will depress U.S. corporate earnings.

On Wall Street the Dow Jones industrial average eased 10.69 points to 7,838.30, the fifth consecutive decline in the blue-chip index--which followed five consecutive gains the previous weak.

In the broad market winners edged losers on the New York Stock Exchange, but most major indexes closed lower.

The Nasdaq composite, heavy with tech issues, fell 21.96 points, or 1.4%, to 1,536.58 on Friday, bringing its loss for the week to 6%--the worst weekly decline since August 1990. The index closed just above its finish of 1,535.09 on Oct. 27, the day of the market’s “mini-crash.”

By contrast the Dow dropped 3.8% for the week. The Dow still is up 21.6% year-to-date; the Nasdaq is up 19%.

Rattled by a stream of corporate warnings this week about earnings weakness because of slowing demand from Asia, investors dumped stocks in many industries.

“Until we get some clarification of exactly what is going on in Asia . . . the market’s going to be nervous,” said Peter Coolidge, trader at Brean Murray & Co.

Technology stocks were hit hardest all week by worries about Asia’s mess, and many tech issues fell further on Friday.

“There’s no doubt about it, technology is in a bear market,” said Robert Streed, a money manager with Northern Trust Co. in Chicago, which oversees $130 billion.

Overnight, Asian stock markets provided little comfort to U.S. investors concerned about the region’s future. Most markets continued to tumble, with Indonesia’s main share index down 7.6% and Malaysia’s down 2.4%.

Key European markets, however, closed up modestly, setting a better tone for Wall Street.

Still, what many U.S. investors wanted to buy on Friday was bonds, not stocks.

The government’s report that wholesale prices overall declined 0.2% in November reinforced that the immediate threat to the economy may not be inflation, but rather deflation. And in that environment, many investors’ mentality is to lock in guaranteed returns on bonds.

The benchmark 30-year Treasury bond yield sank from 5.99% on Thursday to 5.92% on Friday, the lowest since Oct. 21, 1993. Shorter-term yields also fell.

A week ago the 30-year yield was at 6.09%.

“The bond market has additional potential to gain from this point,” said Peter Palfrey at Back Bay Advisors LP in Boston. “Given the inflation outlook in the U.S. and the moderating effect of the Asian crisis on economic growth, U.S. bonds remain attractive.”

The raw element of fear also is driving people to bonds, analysts say. With South Korea teetering on the edge of bankruptcy, many investors are simply looking for safe haven.

Strength in bonds may have helped the dollar. It rose broadly against the German and Japanese currencies as investors remained skeptical about Japan’s economic stimulus plan and as a German official said weak Asian markets will affect Europe.

Among Friday’s highlights:

* Tech issues sliding further included IBM, down $1.25 to $100.38; Microsoft, down $2.31 to $136.75; National Semiconductor, down $2.25 to $24.13; Adobe Systems, down $3.81 to $35.25; Cisco Systems, down $6.13 to $76.56; and Tellabs, down $3.94 to $48.25.

Electronics for Imaging plunged $24.13, or 62%, to $14.88, after the company said fourth-quarter earnings will fall below analysts’ forecasts because big Japanese customers are delaying purchases.

* Energy-related stocks also were weak. Chevron lost $2.06 to $75.50 and Baker Hughes sank $2 to $41.

* On the plus side, utilities continued to attract safe-haven-seekers. Consolidated Edison surged $2.06 to $40, American Electric Power gained 81 cents to $49.56 and Ameritech jumped $2.06 to $79.63.

Also, cable TV stocks rose again on takeover rumors. Tele-Communications gained $1.16 to $28.

Market Roundup, D4