Bond Yields Slip on Possible Move by Bank of Japan

Stocks ended broadly lower Wednesday for a second day, though major indexes were down just fractionally.

Treasury bond yields eased on speculation the Bank of Japan will be buying more of the securities as it tries to keep the yen from strengthening further.

Wall Street struggled for much of the day, but a late rally cut the losses.

The Dow Jones industrial average ended down 1.56 points at 9,921.86, after trading as low as 9,882.

The Standard & Poor’s 500 slipped 1.13 points to 1,059.05 while the Nasdaq composite lost 3.67 points to 1,904.65.

Indexes of smaller stocks suffered heavier losses, continuing the trend of the last week as some investors have taken profits in some of the year’s biggest gainers.

The Russell 2,000 index of smaller shares dropped 6.05 points, or 1.1%, to 528.49.

Falling stocks outnumbered rising issues by about 3 to 2 on the New York Stock Exchange and by about 2 to 1 on Nasdaq.

The market had struggled Tuesday after the Federal Reserve hinted that it may be poised to tighten credit next year. Stocks tried to rally early Wednesday but couldn’t maintain their momentum.

But some analysts say investors are less concerned about the Fed than about reaping some of the gains they’ve racked up this year.

“There are two things at play in this market,” said Kevin Caron, strategist with Ryan, Beck & Co. “You’ve got fundamental conditions in the economy improving, but on the other hand you have the very human response of money managers, who are facing the year-end and trying to position their portfolios after two or three down years.”

Many analysts say the fundamentals of rising corporate earnings and still-low interest rates will support a rising market in 2004.

Despite weakness in the broad market, investors responded positively Wednesday to upbeat forecasts from two technology giants -- computer networker Cisco Systems, which rose 55 cents to $23.78, and data-storage company EMC, which added 11 cents to $12.37.

In the bond market Treasury yields fell after the Bank of Japan sold yen to push the currency down against the dollar. The sales raised speculation that the bank will buy U.S. government securities with the proceeds.

Japan’s central bank may have sold $5 billion to $6 billion in yen overnight, according to foreign exchange analysts at Brown Bros. Harriman & Co.

The Japanese government has been worried about the surging yen because its strength makes Japanese exports more expensive. The yen hit a three-year high of 107.07 per dollar on Tuesday, then sagged to 108.26 on Wednesday.

With the dollars raised by selling yen, it would be natural for the Bank of Japan to invest the money in U.S. Treasuries, analysts said.

And “news of a big buyer possibly coming into the markets always helps bonds a bit,” Sadakichi Robbins, head of fixed-income trading at Bank Julius Baer in New York, told Bloomberg News.

The yield on the 10-year Treasury note dipped to 4.32% from 4.35% on Tuesday, when yields rose in the wake of the Fed meeting. The yield on the two-year T-note fell to 1.91% from 1.97%.

The Bank of Japan development helped the Treasury market overcome news of weak demand at an auction of new five-year notes. The yield was 3.38% on the notes.

Among the day’s highlights:

* Shares of mortgage lenders continued to slide on concerns that the housing market may have peaked. Countrywide Financial lost $3.49 to $99.71, Washington Mutual fell $1.40 to $38.57 and Golden West Financial slid $2.56 to $96.57.

* Recent winners in the industrial sector were hit by profit-taking. Mining firm Inco lost $1.94 to $35.34 and Alcoa dropped $1.23 to $33.73.

* Blue-chip winners in the Dow included IBM, up $1.10 to $91.73; Coca-Cola, up 43 cents to $48.19; Altria Group, up 57 cents to $52.31; and SBC Communications, up 64 cents to $24.61.

* While some investors snapped up blue chips, many smaller stocks lost ground. Restaurant chain IHOP fell $1 to $36.65, shoe maker Deckers Outdoor lost $1.85 to $17.35 and apparel retailer Columbia Sportswear fell $2.01 to $52.10.

The Russell 2,000 small-stock index has fallen 4.7% from its recent high reached Dec. 1. It still is up 38% this year, compared with a 19% gain for the Dow.

* Some energy-services stocks edged up. Halliburton gained 45 cents to $25 and Transocean rose 44 cents to $22.45.

* AutoZone plunged $11.09 to $80.25 after the auto parts retailer reported disappointing sales for its most recent quarter.

Also in the retailing sector, Sears fell $1.65 to $46, Hot Topic dropped $1.04 to $27.76 and Best Buy was off 84 cents to $51.98.