Inflation Talk Gets to Bonds; Stocks Recover

Words of caution from another Federal Reserve Board official caused nervousness in financial markets Thursday, but by the close of trading stocks had mostly regained their composure.

Bonds, however, took the remarks more personally, and yields rose on the day.

On Wall Street, the Dow Jones industrials finished up 38.49 points at a record 6,765.37, after surrendering a 55-point morning rally, turning negative for a while, then rallying late in the day.

The market was clipped at midday by comments from Fed Gov. Laurence Meyer, who said in a speech in Charlotte, N.C., that he is more worried about the potential for accelerating inflation than for slower economic growth.

His remarks were viewed as a hint that the Fed could raise interest rates soon, if unemployment remains low while wages and prices accelerate.

In early December, Fed Chairman Alan Greenspan riled markets by raising the question of whether stocks, in particular, were exhibiting “irrational exuberance.”

In the bond market Thursday yields rose in afternoon trading, responding to Meyer’s tone. The yield on the bellwether 30-year Treasury bond jumped as high as 6.86% before settling at 6.82%, up from 6.79% Wednesday.

As for stocks, however, “The market sneezed at [Meyer’s] comments,” said Alfred E. Goldman, vice president at A.G. Edwards & Sons, but “stocks bent but they didn’t break, and the buyers came in.”

Demand for stocks was helped by some strong fourth-quarter corporate earnings reports. Eastman Kodak’s report was a big help to the Dow. Kodak soared 4 1/4 to 85 1/2, a 5.2% jump.

Among broad indexes, the Standard & Poor’s 500 rose 2.55 points to a record 769.75, and the NYSE’s composite index rose 1.08 points to a record 406.12.

Winners edged losers on the NYSE and on Nasdaq. Still, the Russell 2,000 index of smaller stocks lost 0.27 point to 366.92.

“This market has got a bit of a case of nerves,” said Michael LaTronica, director of research at Gruntal. “But that’s a symptom of a market that has come as far as this one has in the last couple of years.”

Among Thursday’s highlights:

* Stocks reacting to earnings reports included Sun Microsystems, up 2 13/16 to 31 1/16; Digital Equipment, up 2 1/2 to 36 3/4; semiconductor maker Xilinx, up 5 1/8 to 42 3/4; Abbott Labs, up 2 1/8 to 55 3/8; and Pfizer, up 3/8 to 87 1/4.

On the downside, GE fell 1 3/8 to 101 1/2 on some disappointment over its earnings. Diebold, which makes bank ATM machines, slumped 3 7/8 to 60 5/8 on its earnings report. And brokerage Charles Schwab sank 1 1/4 to 32 1/2 despite posting robust earnings.

* Many industrial issues that would benefit from a stronger economy gained. Air Products & Chemicals jumped 1 3/8 to 71 1/8, Phelps Dodge gained 1 7/8 to 73 1/2, B.F. Goodrich rose 2 to 39 1/2, Kimberly-Clark was up 1 7/8 to 101 3/8 and Dupont surged 1 7/8 to 108 3/4.

* Biotech issues rallied broadly. Agouron Pharmaceuticals jumped 4 1/4 to 76 3/4, Gilead Sciences leaped 1 5/8 to 29 7/8, Biogen was up 1 7/8 to 43 3/8 and Amylin Pharmaceutical gained 1 3/16 to 13 5/8.

* In the consumer sector, Gillette added 1 1/2 to 82, Amway Asia Pacific soared 2 1/4 to 47 and Colgate-Palmolive gained 1 1/2 to 94 1/8.

In foreign trading, London, Toronto and Hong Kong markets hit record highs. But in Mexico City the Bolsa index was hit by profit taking, falling 0.7% to 3,701.83.

In Tokyo the Nikkei-225 index edged up 0.3% to 18,144.34. The Seoul market’s rebound continued, with the main index up 1.7% to 711.86.

Market Roundup, D6