Stocks and bonds retreated, discouraged by a surprisingly strong increase in wholesale prices, but small stocks inched to new heights Friday.
The Dow Jones industrial average was off 16.21 points at 8,045.21 as a big rise in the September producer price index fanned concerns of a central bank interest rate hike.
U.S. bonds fell, ending their worst week in two months, after the Labor Department reported that inflation at the wholesale level climbed 0.5% last month, nearly double economists' estimates.
As the benchmark 30-year Treasury bond fell, its yield rose .08 percentage point to 6.42%, the highest since Sept. 15., from Thursday's 6.36%.
As the blue-chip index sagged, taking a cue from a declining bond market, the Russell 2,000 index of small stocks turned modest gains into another record high.
The Nasdaq composite snapped a six-session run of record closes, dropping 6.82 points to 1,739.03.
Thus, investors grew less pessimistic over the day, driving a lurching partial recovery in stock prices. That recovery may continue in quiet Columbus Day trading on Monday, when a federal holiday will shut bond markets, said Mike Weiner, director of equity research at Banc One Investment Advisors in Columbus, Ohio.
The economic reports followed congressional testimony earlier this week by Federal Reserve Board Chairman Alan Greenspan, who warned that tight labor markets would revive inflation.
In the broader market, declining issues outnumbered advancers by about 9 to 8 on the New York Stock Exchange in moderate trading.
Broad market indexes finished slightly below Thursday's level.
But the Russell 2,000 index of small stocks nudged ahead 0.48 point to 465.03, enough for its second straight record high.
The Standard & Poor's 500-stock list fell 3.64 points to 966.98, and the NYSE composite index fell 1.31 points to 506.85.
Among Friday's highlights:
* With inflation worries pushing up interest rates further in the bond market, financial stocks suffered, led by Dow component J.P. Morgan, down $1.25 to $118.69.
Chase Manhattan fell $3.88 at $121.69; Wells Fargo declined $3 at $294.44; BankAmerica dropped $3.06 at $76.38; Banc One dropped $1.38 to $57; and Mellon Bank lost $1.94 to $52.94.
The dollar rose to 1.7487 marks from 1.7427 marks late Thursday, but it fell to 119.78 Japanese yen from 121.10.
Overseas, Frankfurt's DAX index fell 1.3% and London's FTSE-100 was down 0.2%.
Market Roundup, D4