Dow Slips After Strong Start; Yields Steady

An exuberant celebration of a key reading on inflation proved insincere Tuesday, with leading stock measures posting slim gains, if any, after a late pullback with bonds.

The Dow Jones industrial average, which rose about 100 points near the open and held a gain of about 90 through much of the session, fell 4.61 points to close at 6,656.08. The late downturn led the blue-chip barometer to its fifth straight losing session. The Dow has slid 228 points over that span, more than halving the new year’s gain to 3.2%.

Some broad measures managed tiny gains after dipping into negative territory as bonds retreated in the afternoon.

At the close, the 30-year bond held a small gain, which trimmed its yield to 6.93% from 6.94% on Monday. Early in the session, the yield, which moves in the opposite direction of the bond’s price, hovered at 6.83%.

Financial markets exploded from the start on news that the Labor Department’s employment cost index--a key indicator of wage price pressure--rose 0.8% in the last three months of 1996, slightly less than the 0.9% that Wall Street had expected, quashing fears of a dangerous inflationary spike.

“The ECI started the day off well and said there is no current danger of inflation even with the unemployment rate as low as it is,” said Stan Shipley, senior strategist at Lehman Bros.

Later, however, strong retail sales and consumer confidence data eroded the bond market’s rally and triggered stiff profit taking in stocks.

Advancing issues outnumbered decliners by more than a 4-3 margin on the New York Stock Exchange in heavy trading. The Standard & Poor’s 500-stock list, up more than 11 points during the session, closed unchanged at 765.02.

Among Tuesday’s highlights:

* Drug shares were also strong after several companies reported higher earnings. Merck climbed 2 1/2 to 87 and Eli Lilly gained 1 7/8 to 82 1/4.

* The Federal National Mortgage Assn., or Fannie Mae, climbed 1 3/4 to 38 3/4 after announcing that it exceeded all its housing goals set by regulators in 1996.

Market Roundup, D6