Bond Yields Up as Fed Session Nears

Nervous bond traders sent Treasury security yields up sharply Friday despite a relatively benign April wholesale inflation report, and that nipped a strong Nasdaq rally in the bud.

The Nasdaq composite ended up 29.48 points, or 0.8%, at 3,529.06, but the index had been as high as 3,619 before fading.

The Dow Jones industrials gained 63.40 points, or 0.6%, to 10,609.37.

Winners narrowly outnumbered losers on Nasdaq and on the New York Stock Exchange, but trading volume remained anemic, with 1.2 billion shares changing hands on Nasdaq.

For the week, the Nasdaq index slumped 7.5%, owing to a sharp decline early in the week in major tech names. The index now is down 30% from its March 10 record closing high.

The Dow gained a net 31.51 points for the week.

Many stock investors have been frozen into place, waiting on the Federal Reserve meeting on Tuesday, when policymakers are expected to raise their benchmark short-term interest rate by as much as half a point, to 6.5%.

In the bond market, nervousness ahead of the Fed meeting helped send the two-year T-note yield to 6.94% on Friday from 6.84% Thursday, and the 10-year T-note to 6.53% from 6.42%.

Rising oil prices didn’t help bonds. Also, some traders late Friday sold Treasuries to buy debt of mortgage giants Freddie Mac and Fannie Mae. Bonds of those companies had been dumped earlier in the day on speculation that their debt ratings would be cut from their current “triple-A” status.

Moody’s Investors Service and Standard & Poor’s Corp., the two largest credit rating companies, said the speculation was unfounded and reaffirmed their ratings.

Meanwhile, the euro rallied against the dollar, ending at nearly 92 cents.

Among Friday’s highlights:

* Some major tech stocks saw buying. Merrill Lynch reiterated a “buy” recommendation on depressed AT&T;, with a price target of $60 in 12 to 18 months. AT&T; surged $3.25 to $38.75.

AT&T; CEO Michael Armstrong and Chief Financial Officer Charles Noski briefed financial analysts on each of AT&T;’s business units. Armstrong “indicated that fixing the underlying businesses will take priority,” wrote Merrill analyst Adam Quinton in a research note about the meeting.

Also, Goldman Sachs boosted Agilent Technologies. Goldman said it continues to recommend the stock and said the test and measurement giant is likely to be added to the Standard & Poor’s 500 index by June 2. Agilent jumped $14 to $90.56.

Other tech winners included Sun Microsystems, up $4.69 to $81.50; America Online, up $1.50 to $55.25; Ciena, up $7.81 to $137.25; Oracle, up $1.81 to $74.19; and Dell Computer, up $5.19 to $49.88 after its better-than-expected earnings report on Thursday.

* Xerox gained $1.50 to $27 on optimism that the world’s biggest copier maker will turn around quickly following the ouster of Chief Executive Richard Thoman, after a failed reorganization.

* Newspaper stocks were strong, including Gannett, up $1.13 to $61.94, and Knight-Ridder, up $1.50 to $50.19.

* Many energy-related stocks continued to advance with higher crude oil prices. Burlington Resources gained $1.31 to $44.81 and Kerr McGee added 81 cents to $56.69.

Market Roundup, C4-5