U.S. Stocks Fall as Yields Rise; Tokyo Mart Up

Wall Street closed broadly but modestly lower Wednesday in very heavy trading, reacting to a sudden jump in bond yields.

Meanwhile, in Tokyo, stocks hit their highest levels of the year after a survey showed businesses are surprisingly optimistic.

In the U.S. market, the Dow Jones industrials sank 68.80 points, or 0.9%, to 7,689.98, in a late sell-off that for a while looked like it might repeat Monday’s steep slide.

Most indexes followed the Dow lower. But losers outnumbered winners by just 15 to 13 on the Big Board.

Early on the Dow again crossed the 7,800 mark, only to fall back.

An unsettled bond market apparently provoked some selling Wednesday. Bond yields rose across the board.

While the Treasury saw strong demand at its sale of $11.5 billion of new five-year notes--which carried an average yield of 6.30%--securities firms were “disappointed by the lack of follow-through demand” after the sale, said David Ging, a bond market strategist at Donaldson, Lufkin & Jenrette Securities.

Then a rumor hit that a major Asian investor dumped $1 billion of 10-year Treasury notes on the market in mid-afternoon.

That supposed sale was particularly unnerving because Japanese Prime Minister Ryutaro Hashimoto on Monday had roiled markets by suggesting that Japan might consider selling its huge T-bond holdings if it was unhappy with currency fluctuations.

The Japanese government later insisted that it did not have any plans to sell bonds.

Also Wednesday, OPEC’s decision to stop cheating on production quotas lifted oil prices. (Story, D3.) Bond traders naturally viewed that as a negative.

By the close of trading, the yield on the benchmark 30-year T-bond had reached 6.73%, up from 6.69% on Tuesday and the highest since June 13.

Meanwhile, Treasury Secretary Robert Rubin, at a news conference, dismissed concern that foreign holders of Treasuries might sell them in large quantities, saying the U.S. markets are so vast that they “would be able to absorb” selling by a single foreign country.

Worries about Japanese selling helped send the Dow index down 192.25 points on Monday. It rebounded 153.80 points on Tuesday.

“The market has just been an automatic yo-yo since Monday,” said Robert Stovall of Stovall/Twenty-First Advisers. With stock prices up sharply this year, “traders have twitchy trigger fingers, and they’re ready and willing to sell whenever some news or rumors come along.”

Elsewhere, Japanese stocks rose Wednesday, with the Nikkei-225 index gaining 1.7% to 20,679, a 1997 high, after a business-sentiment survey registered sharply higher readings--indicating an accelerating recovery.