Rise in Bond Yields Leaves Stocks Mixed

Stocks managed a mixed finish Thursday, despite fresh weakness in the bond market as some surprisingly strong economic readings again spooked bond owners.

The Dow Jones industrial average added 9.61 points to 5,635.05, although losers outnumbered winners by 13 to 11 on the New York Stock Exchange in slow trading.

In the Nasdaq market of mostly smaller stocks, however, winners edged losers and the Nasdaq composite index closed up 5.75 points at a record 1,239.31, continuing that market’s hot streak of the past two months.

The Nasdaq index now is up 17.8% year-to-date, versus a 10% rise in the Dow.

Stocks showed resilience as the bond market reacted badly to the latest economic data. The Commerce Department reported that construction of new homes and apartments unexpectedly shot up in April, suggesting that the economy continues to improve.

Bond owners have been troubled in recent months by the economy’s strength, fearing that either inflation will rise or the Federal Reserve Board will tighten credit soon, or both.

Yields had been declining in recent days on some low inflation reports, but on Thursday yields jumped again, with the 30-year Treasury bond ending at 6.92%, up from 6.85% Wednesday and the highest since last Friday.

Bonds also were hurt by market “indigestion” in the wake of Lockheed Martin’s $3.5-billion corporate debt issue, a record sum for a single corporate issue of investment grade. Although the offering, which will help finance Lockheed’s purchase of Loral, was hungrily snapped up by investors, some of them may have dumped Treasury issues to buy the Lockheed debt, traders said.

For the stock market, the bond market’s turmoil this spring has been only a minor distraction. Despite higher yields, “the [stock] market’s underpinning is still firm,” said Michael Metz, analyst at Oppenheimer & Co. “There’s still universal optimism” that the economy is growing at a healthy pace, he said. “Whether these expectations prove justified is another matter.”

Among Thursday’s highlights:

* Hewlett-Packard tumbled 8 1/2 to 105 1/4 after its quarterly earnings report disappointed investors, despite a 25% rise in net earnings. But other tech issues were mixed. IBM eased 3/8 to 108 5/8 and Compaq slipped 3/8 to 47 1/4, but Adobe Systems gained 2 1/4 to 44 7/8 and Seagate surged 3 to 62 1/4.

* Many telecommunications- and Internet-related issues continued their recent streak. Westell Technologies rocketed 9 1/4 to 84 1/2, U.S. Long Distance soared 7 1/2 to 40, Sprint rose 1 3/16 to 43 9/16 and Diana surged 12 1/8 to 84 1/2. Also, PSInet added 3/8 to 18 1/2 after saying it may sell itself.

* Chrysler jumped 2 1/4 to 67 1/8 after announcing a 2-for-1 stock split and a 16% increase in its dividend. Retailer Tiffany surged 2 3/4 to 76 1/2 after it set a 2-for-1 stock split and a 43% dividend hike.

* On the down side, oil stocks weakened as crude oil prices fell sharply, after Iraqi officials indicated that a long-awaited deal with the United Nations to get Iraqi oil back on the world market was near. Texaco fell 1 1/8 to 82 1/8, Exxon lost 3/4 to 83 7/8, Atlantic Richfield sank 2 5/8 to 117 3/4 and Louisiana Land dropped 1 1/2 to 53 3/8.

* Financial and utility stocks also weakened, as bond yields rose.