Bond Yields Tumble; Stocks End Day Mixed

Treasury bond yields slid to four-month lows Friday after a weaker-than-expected July employment report fueled new confidence that the Federal Reserve would halt its credit-tightening campaign.

The stock market, however, ended mixed after surrendering most or all of a morning rally. Stock investors may be worried that the economy might decelerate too quickly, analysts said.

The Dow Jones industrial average finished with a loss of 2.24 points at 11,240.35, after being up 100 points at the outset.

In the bond market the 10-year T-note yield, a benchmark for mortgages and other long-term interest rates, slid to 4.89%, down from 4.96% on Thursday and the lowest since April 11.

The 10-year T-note has tumbled from a four-year high of 5.24% on June 28.

The two-year T-note yield, which is particularly sensitive to Fed rate expectations, dropped to 4.91% from 4.98% on Thursday. That yield peaked at 5.28% on June 28.

“No question of a pause now” when Fed policymakers meet Tuesday, said Andy Brenner, head of global fixed income at Hapoalim Securities.

The monthly jobs report was the fifth in a row that came in below expectations, adding more credence to the idea that the economy is slowing enough to justify an end to two years of rising short-term interest rates. The Fed’s key rate now is 5.25%, up from 1% in mid-2004.

The soft jobs data show “the economy has lost a lot of momentum,” said Michael Cheah, a portfolio manager at AIG SunAmerica Asset Management in Jersey City, N.J.

Still, some analysts cautioned that higher inflation -- in the prices of goods and services and in wages -- could keep pressure on the Fed to tighten further.

Even if policymakers pause next week, they might raise rates again in the fall, some experts said.

For the stock market, the concern is that “maybe what this employment report might be telling us is that the economy is weaker than we thought -- not just slowing down, but actually weak,” said Ken McCarthy, economist at VFinance Investments.

Significant weakness in the economy could raise the risk of tipping into recession, which could devastate corporate earnings and pull the rug from under the stock market.

The Standard & Poor’s 500 index ended with a loss of 0.91 point, or 0.1%, to 1,279.36. It was up nearly 1% early in the session.

The Nasdaq composite index lost 7.29 points, or 0.4%, to 2,085.05.

Winners had a narrow edge over losers on the New York Stock Exchange, but losers dominated on Nasdaq.

For the week the Dow added 0.2% and the S&P; 500 was up 0.1%. Nasdaq fell 0.4%.

The broad market has recovered somewhat in recent weeks after diving from mid-May to mid-June on economy worries. But the Dow remains 3.5% below its six-year high reached May 10. The Russell 2,000 small-stock index, which fell 0.4% on Friday, is down 10.3% from its all-time high reached May 5.

Among Friday’s market highlights:

* Transportation stocks resumed their recent decline. The sector often signals shifts in the economy’s fortunes. Rail giant Union Pacific fell $3.07 to $83.85. Trucking firm Ryder was down 72 cents to $50.43.

But other industrial issues were mixed. U.S. Steel dropped $1.30 to $59.15, but Caterpillar edged up 37 cents to $73.10.

* Apple Computer hurt the Nasdaq index after the company said it probably would restate earnings because of “irregularities” in how it issued stock options to employees in years past. Apple was down $1.29 to $68.30 after falling as low as $64.96.

* Drug maker Bristol-Myers Squibb retreated $1.04 to $22.75 on speculation that a generic version of its Plavix blood thinner may be on the market as soon as this month.

* In other trading, near-term crude oil futures eased 70 cents to $74.76 a barrel in New York. The employment report and the drop in bond yields pushed the dollar lower. The euro rose to a nine-week high of $1.288 from $1.281 on Thursday.