FINANCIAL MARKETS : Dow Creeps to Record, Bond Yields Edge Up

Major stock indexes advanced to new highs Wednesday despite a small rise in bond yields and downbeat earnings forecast from some key companies.

The Dow industrial average added 6.57 points to a record 4,491.08, surpassing the previous record of 4,485.20 set June 6.

The broad market was less robust, however. Losers topped winners by 11 to 10 on the New York Stock Exchange in active trading. But most other major stock indexes still joined the Dow at new highs.

In the bond market, where yields had plummeted Tuesday after the government reported fresh signs of economic weakness, buyers pulled back.

The 30-year Treasury bond yield, which had plunged from 6.70% on Monday to 6.54% on Tuesday, edged up to 6.57%. Shorter-term yields were also modestly higher.

Data reported Wednesday added to the torrent of recent evidence that the economy is slowing markedly. The government said business inventories jumped in April.

The steepness of the decline in business activity this spring has already pushed bond yields to levels that assume the Federal Reserve Board will cut short-term interest rates soon to help keep the economy out of recession.

But some Fed officials have recently downplayed the risk to the economy, hinting that a rate cut may not be imminent. The Fed is maintaining its benchmark short-term interest rate, the federal funds rate, at about 6%.

Bond investors “are on the edge of their seats wondering” when the Fed will cut rates, said Michael Englund, chief economist at MMS International in San Francisco. “We’re probably stuck at around 6.5% [on 30-year T-bond yields] at least until we get the next [monthly] employment report,” he said.

The government will report on June employment July 7.

As for stocks, some analysts expect volatility to pick up today and Friday because of Friday’s “triple witching” quarterly expiration of stock option, index option and index futures contracts.

Some traders are particularly wary of taking any major positions ahead of Friday’s expirations, because a “double witching” expiration on May 19 was thought to be partly responsible for the Dow’s 82-point loss the day before.

As options and futures expire, traders who have used those instruments in complex market bets must settle their positions, which can involve heavy buying or selling of stocks.

Meanwhile, bearish analysts say the Dow’s grinding motion of the past few weeks suggests the market may be topping out after its stunning first-half advance.

Some Wall Streeters say the market may be undermined by the rising number of companies that are warning about weaker second-quarter earnings. Many of those companies say they are being hurt by the slowing economy.

Among Wednesday’s highlights:

* Shares of health maintenance organizations were broadly lower after Humana said higher medical costs will hold its second-quarter earnings below analysts’ estimates.

The company said net income will be between 29 cents and 31 cents a share, up from 23 cents a year ago but below analysts’ mean forecast of 33 cents.

Humana plunged 3 1/4 to 19 5/8. Other HMO losers included United Healthcare, down 2 3/8 to 40; U.S. Healthcare, down 1 7/8 to 32 1/4, and FHP International, down 3/4 to 22 1/2.

* Chemical stocks slumped after Rohm & Haas warned that its second-quarter earnings will fall short because of the economy’s deceleration.

Rohm & Haas dropped 1 7/8 to 52 after losing 3 1/2 on Tuesday. Also falling were Monsanto, off 1 5/8 to 89 1/8; DuPont, down 7/8 to 65 3/8; Hercules, off 1/2 to 49 1/2, and Georgia Gulf, down 3/4 to 30 5/8.

* Technology issues helped give the market a lift. Software firm Sybase surged 3 1/2 to 28 1/2 on rumors it may be a takeover target for Microsoft, Sun Microsystems or IBM. Sybase said there was no basis for the rumor.

Other tech stocks advancing sharply included Texas Instruments, up 4 to 123 1/2; Digital Equipment, up 1 1/2 to 45 1/4; Cabletron Systems, up 1 1/4 to 51 5/8, and Broderbund, up 2 1/2 to 55.

But Pairgain Technologies fell 1 1/2 to 20 1/8 after the Cerritos maker of telecommunications equipment said its inventories were larger than planned, which caused at least one Wall Street analyst to issue a cautious report about near-term earnings.

* Airline stocks continued to rise on expectations of healthy quarterly earnings. Southwest gained 1/4 to 24 5/8 and Northwest jumped 3/4 to 34 1/2.

* Among the day’s big losers, COR Therapeutics plummeted 8 1/2 to 10 1/4 after the biotechnology company said a preliminary analysis of trial results for its Intergrelin cardiovascular drug were not statistically significant.

In Tokyo, stocks reversed a four-day losing streak to end firmer. Bargain hunting on weakness and arbitrage-linked buying helped the Nikkei-225 index gain 60.81 points to 14,660.49.

In Mexico City, the Bolsa index edged up 2.09 points to 1,985.86.

Market Roundup, D7