Bond Yields Rise on News

Inflation jitters sent bond yields surging Thursday as new data on the economy reinforced the idea that the Federal Reserve would continue to tighten credit.

Crude oil prices rose above $67 a barrel and gold hit a 25-year high in futures trading.

Stocks were mixed. The Dow Jones industrial average fell 65 points, or 0.6%, to 11,150.70, but broader indexes had smaller losses.

Bond investors fretted after the Commerce Department revised fourth-quarter gross domestic product growth to a real annual rate of 1.7% from a previous estimate of 1.6%.

Although the final GDP reading matched economists’ expectations, a “core” inflation index watched closely by the Fed rose at an annual rate of 2.4% in the quarter, up from the 2.1% increase previously estimated.

Investors have been fearful of signs of rising inflation because that could force the Fed to continue boosting short-term interest rates to control price increases.

“I think you’re seeing the market raising its estimates on economic growth, but that also may mean higher [interest] rates,” said Brian Gendreau, investment strategist at ING Investment Management.

Investors dumped Treasury bonds on the news, driving the yield on the benchmark 10-year Treasury note to 4.86%, up from 4.8% on Wednesday and the highest since May 2004.

Bonds also were hurt as crude oil futures pushed past $67 a barrel, to a two-month high, as investors worried about political tension over Iran’s nuclear program and a fourth straight weekly drop in U.S. gasoline inventories.

A barrel of light crude rose 70 cents to $67.15 in New York futures trading.

The Fed, in raising its key short-term rate a quarter of a percentage point to 4.75% on Tuesday -- the 15th increase since mid-2004 -- cited the potential for higher commodity prices to fuel more broad-based inflation. More rate boosts may be needed to quell inflation, policymakers said.

The Fed’s hint at further rate increases “opens the door for the inflation hobgoblins to come back in,” said Kevin Barry, who manages about $6 billion as head of U.S. bond investments at Credit Suisse Asset Management.

Inflation worries also may have pushed precious metals prices up Thursday, extending their first-quarter rally.

Near-term gold futures jumped $13.40 to $586.70 an ounce, a 25-year high. Silver soared 54.5 cents to $11.62 an ounce, also the highest since the early 1980s.

Yet the stock market appears to be focusing on the good news of solid economic growth, and has been relatively unfazed by rising bond yields and renewed inflation worries this week.

On Thursday, the Standard & Poor’s 500 index lost 2.64 points, or 0.2%, to 1,300.25, while the Nasdaq composite rose 3.04 points, or 0.1%, to 2,340.82, reaching its second straight five-year high.

Losers had only a modest edge over winners on the New York Stock Exchange, and on Nasdaq winners and losers were nearly even. The NYSE composite index edged up 0.3% to a record high of 8,271.79.

With one day to go in the first quarter, the Dow is up 4% this year, the S&P; 500 is up 4.2% and the Nasdaq index is up 6.1%.

The Russell 2,000 small-stock index, which eased 0.2% on Thursday after hitting a record high on Wednesday, is up 13.3% this year.

With the economy healthy, “You look at corporate earnings, and I think the bulls out there are looking ahead and saying this market can go higher,” said Neil Donahoe, chief investment officer of SYM Financial Advisors, which manages $600 million in Warsaw, Ind.

Among the day’s market highlights:

* GM fell $1.09 to $21.06 for the worst performance in the Dow average. GM, raising cash after $10.6 billion in losses last year, said it was in talks to sell shares of Japan’s Isuzu Motors.

But Toyota Motor’s U.S.-traded shares rose 89 cents to a record $110.15.

* Some technology shares advanced, helping to lift Nasdaq, after mobile phone maker Nokia raised its forecast for industry sales. Nokia’s U.S. shares jumped $1.06 to $21.28. The company predicted growth in the global handset market of 15% this year on demand in China and India, up from its previous estimate of at least 10%.

Other tech shares gaining included Texas Instruments, up $1.09 to $33.08; Qualcomm, up 13 cents to $50.85; and LM Ericsson, up 90 cents to $39.10.

* Google pulled back, losing $6.54 to $388.44. The Internet search company said after the closing bell Wednesday that it planned to sell 5.3 million shares to investors to satisfy demand as the stock joins the S&P; 500.

* Copper producer Phelps Dodge paced gains among raw-materials producers, rising $4.46 to $81.48, as copper and other metals reached records.

Among gold mining issues, Agnico Eagle soared $1.71 to $29.95, Newmont Mining jumped $1.44 to $52.93 and Glamis Gold shot up $1.52 to $32.70.

* Rising bond yields depressed utility stocks. The Dow utility index fell 1.1% to 392.66, its lowest since November.

* In foreign trading, Japan’s Nikkei-225 index crossed the 17,000 mark for the first time in five years, rallying 0.6% to 17,045.34. Stocks also reached multiyear highs in Germany and France.