Inflation News, Tech Rally Send Stocks Higher

Stocks rose as bond yields fell Friday on fresh signs that inflation remains subdued and as investors continued to rush into technology stocks--pushing the Nasdaq composite index above the 1,500-mark for the first time.

On Wall Street, the Dow Jones industrial average rose 35.06 points to 7,921.82, surrendering a larger midday gain.

For the week, the index inched up 0.3%, though it ended about 40 points below Tuesday’s record close of 7,962.31.

Winners topped losers by 17 to 11 on the New York Stock Exchange on Friday and by 24 to 16 on Nasdaq.

Investors were in a buying mood again after the government reported Friday that wholesale prices had declined for an unprecedented sixth straight month in June. The 0.1% drop in the producer price index followed a 0.3% decline in May.

The news sent bond yields lower across the board. The bellwether 30-year Treasury issue closed at 6.52%, down from 6.56% on Thursday. Friday’s yield matches the 1997 low set on Feb. 14.

“Inflation is as close to zero as it gets,” said Kevin McClintock, who oversees about $5 billion of bonds at Dreyfus Corp. He said he sees 6% as “a reasonable target” for 30-year bonds by year-end.

Falling rates naturally bolster Wall Street’s appetite for stocks. Also, early reports of second-quarter corporate earnings have largely been favorable, reinforcing the idea that the economy can continue to grow with negligible inflation.

“The Federal Reserve has managed to keep the economy on a slow, steady growth path with little or no inflation,” said Charles White, managing director at Avatar Associates. “Where else would you go but into dollar-denominated assets if you were a portfolio manager with excess liquidity?”

And significantly this week, investors seemed much more interested in shares of smaller companies than in blue chips: The Russell 2,000 index of smaller stocks rose 0.8% Friday to a record 402.26 and was up 1.5% for the week--while the blue-chip Standard & Poor’s 500 actually closed marginally lower for the week.

Among Friday’s highlights:

* Gains in leading tech shares pushed the Nasdaq composite up 11.69 points, or 0.8%, to a record 1,502.62. Analysts said Compaq Computer’s earning report on Thursday powered optimism about the tech sector. Compaq gained $3.75 to $123.88 on Friday.

Nasdaq tech winners included Intel, up $3.69 to $153.81; Dell, up $9.38 to $138; Vitesse, up $1.75 to $38.88.

* The Nasdaq index was able to rise despite the impact of MCI Communications, which plunged $7.38 to $35 after it warned of deeper-than-expected losses from its efforts to enter the local phone business. Other telecom stocks falling included Sprint, down $2.19 to $49.38; and AT&T;, down 63 cents to $35.13.

* An announcement that oil drillers Reading & Bates, up $2.50 to $33.50, and Falcon Drilling, up 63 cents to $58.50, plan to merge boosted others in the sector.

* At Home, which offers access to the Internet via cable TV, more than doubled, closing up $6.50 at $17 after its $94.5-million initial public stock offering hit the market.

In currency trading, the dollar surged to its highest level against the German mark in nearly six years, at 1.779 marks, buoyed indirectly by a sharp rise in the British pound against the German currency after British interest rates.

Market Roundup, D4