Stocks Mixed; Bond Yields at 1-Month High

U.S. stocks were mixed Thursday on the slowest trading day of the year, as high-yielding Dow Jones industrial average stocks such as 3M rose and Cisco Systems and other big gainers in the recent rally declined.

Bond prices fell for a fourth straight session, driving yields to one-month highs, after economic reports pointed to a buoyant economy, dousing expectations for another Federal Reserve interest rate cut soon.

“There’s disappointment relative to thoughts of further Fed easings,” and that’s weighing on Treasuries, said Ned Riley, chief investment officer at BankBoston, which oversees about $25 billion of assets.

The benchmark 30-year Treasury yield rose to 5.21%, its highest level since Nov. 23, from 5.19% on Wednesday. The yield on two-year notes, the most actively traded Treasuries and among those most sensitive to expectations about Fed policy, rose to 4.75%, from 4.69% on Wednesday.

The dollar rose after a report on the Federal Reserve’s November policy meeting signaled that the central bank probably won’t cut U.S. interest rates again soon.

The stock market closed three hours earlier than usual, and many traders and investors took the day off for the Christmas holiday. Professional money managers were reluctant to make big trades because the absence of so many potential buyers and sellers makes it difficult to get the best prices. Trading is likely to be slower than normal next week as well.

The Dow rose 15.96 points, or 0.2%, to 9,217.99, with J.P. Morgan and 3M accounting for three-quarters of the gain. The Standard & Poor’s 500 index fell 2.27 points, or 0.2%, to 1,226.27. The Nasdaq composite index dropped 9.51 points, or 0.4%, to 2,163.03. Advancers outnumbered decliners by a 15-13 ratio on the New York Stock Exchange.

With just four sessions left in 1998, the Dow is up 16.6% on the year, while the S&P; 500 is up 26.4% and the Nasdaq composite index is up 37.7%. Less than three months ago, the Dow was showing a loss for 1998 and threatening to plunge below 7,400.

3M gained $1.44 to close at $73.50, and J.P. Morgan rose $1.63 to $105. Some investors may be executing the “Dogs of the Dow” strategy, buying the highest-yielding stocks in the average on the theory that they’re cheap and likely to see big gains in the coming year. J.P. Morgan yields about 3.8% annually in dividends, the highest in the Dow, and 3M pays 3%, the third-highest.

About 247 million shares changed hands on the NYSE, the least since Dec. 26, 1997, and one-third the average daily volume of the last three months.

Cisco, which has more than doubled since Oct. 7 and set a record high Wednesday, dropped $2.31 to $94.19. Lucent Technologies, which rose 7.3% to a record Wednesday, sank $2.25 to $107.50. Merck, which rallied 3.5% the first three days this week, fell 81 cents to $148.81.

Expectations that the Fed won’t cut interest rates in coming months fueled the dollar’s rise. Unchanged rates would keep yields on dollar deposits and bonds higher than those in Japan and Germany, boosting the appeal of the U.S. currency.

The dollar rose for a fourth day to 1.6777 marks from 1.6732 late Wednesday in New York. It also rose to 116.29 yen from 115.96. So far this year, the dollar has dropped 6.4% against the mark and 11% against the yen.

Overseas, Japan’s Nikkei stock average fell 0.5%, while Britain’s FTSE-100 fell 0.4%. German and French financial markets were closed for a national holiday.

Market Roundup, C5