FINANCIAL MARKETS : New Inflation Jitters Leave Stocks Mixed

Bond yields ended modestly higher Wednesday amid new inflation concerns, while stocks closed mixed as smaller issues outpaced blue chips. Gold jumped.

The Dow Jones industrials eased 12.45 points to 3,886.25, though losers just narrowly topped winners on the Big Board.

In contrast, rising stocks outnumbered decliners by 15 to 13 in the Nasdaq market of mostly smaller stocks, and the Nasdaq composite index rose 4.80 points to 764.28. Technology stocks led the Nasdaq rally.

Trading volume rose sharply in the stock market from Tuesday’s depressed post-holiday levels.

Renewed selling pressure in the bond market weighed on blue chips, traders said. Bond investors were disappointed by the government’s report that productivity fell at an annual rate of 2.5% during the second quarter, the biggest decline in five years.

Also, the report contained an upward revision in unit labor costs that traders took as a warning of inflation.

What’s more, raw materials prices have been on the rise again. The Commodity Research Bureau index of 21 key commodities added 0.99 point to 234.23 on Wednesday, the highest level in five weeks.

Pacing the commodity rise, gold futures for current delivery rose $2.30 an ounce to $390.20 on the Comex, the highest level since June. A revival in demand from jewelers starting their busiest season for manufacturing--pre-Christmas--helped lift prices.

For all the bad news for the bond market Wednesday, yields were up only marginally. The 30-year Treasury bond yield closed at 7.56%, up from Tuesday’s 7.53%.

Traders said many bond market players are staying sidelined ahead of the government’s reports on August wholesale inflation, due Friday, and consumer inflation, due Tuesday.

Among Wednesday’s market highlights:

* Technology stocks rebounded, as some investors ignored higher interest rates and looked for companies that should benefit from the economy’s continued growth.

Compaq helped stoke the rally by projecting “very favorable” demand for personal computers around the world this fall. But the company also warned that its profit margins will shrink as competition increases. The stock, which hit 36 3/4 early in the day, closed at 35 1/2, up 1/8.

Other tech winners included Intel, up 1 1/8 to 66 3/8; Microsoft, up 7/8 to 56 7/8; Cabletron Systems, up 4 to 109 3/4; Lotus Development, up 2 3/8 to 44 1/2; Cirrus Logic, up 1 5/8 to 29 1/8, and Xilinx, up 2 7/8 to 47 3/8.

* Energy stocks were strong. Arco jumped 2 1/8 to 106 3/8 as some analysts speculated the company will detail new restructuring steps at a meeting next Wednesday with analysts in New York. Other energy issues gaining included Phillips, up 1 to 34 1/4; USX-Marathon, up 5/8 to 17 7/8; Texaco, up 1 1/4 to 62 1/8, and Enron Oil & Gas, up 5/8 to 20 3/4.

* HMO stocks rallied after stumbling Tuesday, in advance of the government’s decision on rate increases for Medicare reimbursement. The rate hikes announced Wednesday averaged about 5%. PacifiCare A, which slumped 5 3/4 Tuesday, rose 2 7/8 to 68 5/8; U.S. Healthcare surged 2 3/8 to 43 1/2 and FHP soared 1 3/8 to 26 7/8.

* On the downside, profit taking hit some industrial issues. Chemical giant DuPont lost 1 1/8 to 58 7/8, Caterpillar eased 7/8 to 55 1/8 and Alumax dropped 1 1/8 to 29 1/8.

* Recreational vehicle maker Winnebago Industries skidded 2 1/2 to 8 7/8 after it said it expects its fourth-quarter operating profit to be below analysts’ forecasts.

Overseas, Tokyo shares were broadly lower, and the Nikkei-225 index lost 370.18 points to 20,023.80, a four-month low. Investors were disappointed in Monday’s debut of shares in Japan Telecom, which fell immediately after they began trading.

In Frankfurt, the DAX index eased 2.08 points to 2,163.82, while London’s FTSE-100 index dipped 1.5 points to 3,203.9.

In Mexico City, the Bolsa index surged for a second day, up 34.85 points to 2,738.92.

In commodity markets, wheat rose to its highest price in almost seven months as shrinking crops in Russia, Canada and Australia boost demand for U.S. grain.

Russia agreed Wednesday to buy 400,000 metric tons of wheat from the United States, while Egypt agreed to buy 650,000 metric tons.

The sales come as excessive rain in Canada and drought in Australia, two of the world’s four largest wheat producers, are projected to leave international wheat stocks at their lowest point in five years.

September wheat rose 6 cents to $3.76 a bushel at the Chicago Board of Trade, the highest since Feb. 14. Wheat is up 24% since July 5.

Crude oil futures rose for a second day, boosted by optimism that demand will rise as winter draws closer. The International Energy Agency raised its forecast for global oil demand in the fourth quarter by 100,000 barrels a day to 69.8 million barrels a day, outstripping production by about 1 million barrels a day.

October crude futures added 19 cents to $17.81 a barrel on the New York Mercantile Exchange.