Blue Chips Manage Modest Gain as Bonds’ Sell-Off Halts

Blue-chip stocks bounced back Monday from a steep two-session decline as a late-session recovery in bonds helped bolster investor confidence.

Strength in stock and bond markets also helped push the dollar higher after Friday’s battering.

On Wall Street, the Dow Jones industrial average tracked the bond market closely, falling as low as 7,964, then rebounding to finish the day at 8,062.11, up 30.89 points from Friday.

The blue-chip index had lost 228 points in the previous two sessions--including a 156.78-point plunge on Friday--as long-term bond yields continued to rise sharply.

In the broad market on Monday, declining issues had only a narrow 1,480-1,377 edge over winners on the New York Stock Exchange, in relatively moderate trading.

In the Nasdaq market of mostly smaller stocks, losers had a wider edge over winners, and the composite index finished down 11.78 points at 1,586.74, after trading as low as 1,570.

All in all, “we really didn’t get much of a follow-through to that scare on Friday,” said Bill Allyn, head of trading at Jefferies & Co. “That in itself is good news.”

As they did last week, stocks took their cue from bonds. The bond market in turn got a boost from remarks by Federal Reserve Board Gov. Susan Phillips, who suggested that there appears to be no immediate need for a tightening of credit.

Recent economic data indicating a strengthening economy had rekindled speculation that the Fed would need to raise interest rates to keep inflation at bay. The Federal Open Market Committee, the central bank’s policy-setting body, has its next meeting Aug. 19.

After rising as high as 6.68% at midday, the yield on the benchmark 30-year Treasury bond ended at 6.63%, unchanged from Friday. Still, that is the highest yield since July 3.

Traders said they expect tentative trading until the appearance of reports Wednesday on retail sales and wholesale inflation for July. Figures on July consumer inflation are due Thursday.

“Don’t expect it to get much clearer until Wednesday and Thursday,” said Guy Truicko, equity portfolio manager at Unity Management. “Then we’ll see where we go from there.”

Meanwhile, a rebound in the dollar on Monday alleviated worries that the buck’s value might plunge, which would encourage foreigners to dump U.S. stock and bond holdings.

The dollar rose to 1.864 German marks from 1.845 on Friday, and it settled in New York at 116.12 yen, up from 114.95 on Friday.

Among Monday’s highlights:

* Oil stocks led blue chips higher on fresh rumors that Mobil and Amoco were close to agreeing to merge U.S. refining and retail fuel operations. Mobil jumped $3.69 to $76.56; Amoco gained $2.31 to $95.81.

Other oil stocks rising included Exxon, up $1.31 to $62.88, and Chevron, up $2.38 to $80.06.

* Utility stocks rose as some investors sought out “defensive” issues. The Dow utility index jumped 3.07 points, or 1.3%, to 232.89.

* On the downside, Coca-Cola fell for a second session, pushing other consumer stocks down with it. The soft drink leader said Friday that its third-quarter earnings would exceed year-ago levels only slightly. Coke fell 94 cents to $61.75 after slumping $3.88 on Friday.

* Drug stocks were hammered after brokerage Morgan Stanley Dean Witter said it did not expect the sector to outperform the broader market in coming quarters. Merck tumbled $3.56 to $95.25, Warner Lambert dropped $3.88 to $132.25, Bristol-Myers Squibb lost $1.56 to $75.56, and Eli Lilly sank $4 to $108.69.

* Tech stocks came under heavy pressure from profit-takers. Apple Computer fell $2.25 to $24.56, Ascend Communications slid $4.75 to $45.69, Intel fell $1.69 to $96.13 and Dell Computer lost $3.88 to $75.75.

Elsewhere, Mexico City’s Bolsa index declined for the third straight session on concern over higher interest rates. The Bolsa, led by mining company Industria Penoles and truck manufacturer Consorcio Grupo Dina, fell 31.40 points, or 0.6%, to 5,043.65.

Investors are concerned that U.S. interest rates could continue to rise. If that happens, Mexico would be forced to raise its own rates to keep investors attracted to Mexican assets.

Still, with the Bolsa index having gained 51% so far this year, many analysts and fund managers see the recent drop in share prices as a short-term adjustment.

In commodity trading, soybean prices fell sharply as much-needed rains soaked crops in the Midwest, improving the prospects for this year’s harvest.

At the Chicago Board of Trade, soybeans for November delivery closed down 27.5 cents a bushel at $6.10.

Market Roundup, D14