FINANCIAL MARKETS : Blue Chips Up Strongly; Yields Rise

Investors waiting anxiously for an overall year-end rally in stocks were disappointed Monday, though blue-chip stocks closed with double-digit gains.

Treasury yields rose as jittery investors braced for price reports that could suggest that higher interest rates have not restrained inflation. The yield on the Treasury’s main 30-year bond rose to 7.92% from 7.85% on Friday.

Today’s November producer price index and a consumer price report due later in the week are expected to show some inflationary pressures.

Analysts were predicting a 0.5% increase in wholesale prices and a 0.3% rise in prices at the consumer level. Producer prices fell 0.5% in October, while consumer prices rose 1.1%.

Last week’s sharp stock declines due to the investment turmoil surrounding Orange County led some bargain hunters into the market, but there was uncertainty on the inflation front and weakness in the technology issues. The competing forces left stocks mixed to slightly higher at the close.

The Dow Jones industrial average gained 27.26 points to 3,718.37, but advancing and declining issues on the New York Stock Exchange were nearly even, with 1,123 declining, 1,112 advancing and 699 unchanged.

The Standard & Poor’s 500-stock index was up 2.51 at 449.47. The Nasdaq composite, which suffered the most during the day due to its high concentration of technology issues, recovered and was up 0.07 at the close to 719.12.

The market suffered heavy losses last week after Orange County’s risky investment strategies put it in Bankruptcy Court. But analysts said Monday that the selling went too far, making some buying likely.

“After the calm of the weekend and the realization that Orange County isn’t going to go down the drain, things have begun to stabilize,” said Don R. Hays, director of investment strategy at Wheat First Securities in Richmond, Va.

Alfred Goldman, director of technical market analysis at A.G. Edwards & Sons in St. Louis, said a report by the newsletter Investors Intelligence showed the percentage of bears in the market at 59.1%, the highest level since April, 1982.

Some market theorists hold that the number of pessimists has peaked and that a turn upward in investor optimism is due.

“The market is acting like the sellers are just about exhausted and December is the best month of the year for stocks,” Goldman said. “When you come into mid-December having had a very bad six weeks, that enhances the chances of getting a knee-jerk bounce.”

Among sectors benefiting from the bargain hunting were economically sensitive blue-chip, retail and utility stocks.

“You got a lot of just a return to reason,” said Hays at Wheat First Securities. “Last week it was a real lemming type of stampede to sell anything at any cost.”

There was, however, a rush to sell Intel and other high-tech stocks Monday after IBM announced it was halting shipments of its Pentium-based PCs.

Intel, which called IBM’s decision unwarranted, ended off 2 3/8 at 60 3/8 on heavy trading of more than 16 million shares. IBM closed 7/8 lower at 70 5/8.

The selling spread to other computer makers, with Dell dropping 1 1/4 to 39 5/8 and Gateway 2000 dipping 3/8 to 22.

“You got a little bit of a panic going on in the tech stocks,” said Bob Smith, institutional trader at Janney Montgomery Scott.

Analysts said the market’s reaction to today’s data on November producer price inflation and Wednesday’s consumer price numbers will provide clues as to Wall Street’s direction in the coming weeks.

Among the market highlights:

* Retailers got a boost as a cold snap spurred holiday apparel sales. Dayton Hudson rose 2 to 78 1/2 and Nordstrom climbed 3 1/8 to 46 5/8.

* Williams, a major operator of natural gas pipelines, said it will buy a controlling stake Transco Energy for $3 billion. Williams fell 2 3/4 to 24 1/8 and Transco jumped 3 5/8 to 16 1/4.

* General Dynamics leaped 3 3/4 to 42 3/8 and McDonnell Douglas was off 1/2 at 142 1/2 after a federal claims court judge on Friday vacated the Navy’s A-12 attack jet contract termination, which the companies have been fighting.

On the New York Mercantile Exchange, January crude oil closed down 22 cents a barrel at $16.91 after gasoline futures plunged on news that the government will not enforce a Jan. 1 deadline in the Northeast to use cleaner “reformulated” gasoline.

January gasoline dropped to 50.70 cents a gallon before closing at 51.06, down 1.63.

The blue-chip London FTSE 100-stock index closed near the session’s low, down 33.9 at 2,943.4. German stocks also closed lower, with sentiment hit by weaker futures. The DAX index ended down 3.51 points at 2,024.82. Tokyo stocks lost earlier gains and closed a little lower as small-lot selling hit cash prices in thin trading. The 225-share Nikkei average closed down 3.20 at 18,975.10.