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Bonds rally stocks mixed after wild ride

NEW YORK — NEW YORK -- U.S. bonds surged yesterday, driving yields to the lowest in more than a year, as signs of a weaker job market sparked optimism inflation won't accelerate.

But stocks closed mixed at the end of a wild ride, as traders took advantage of a record-setting surge to lock in gains before today's release of the April employment report. The Dow Jones industrial average, after barreling past 4,400 for the first time in the early afternoon, abruptly reversed course and ended down 13.49, at 4,359.66.

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The bond rally was ignited after the government said the number of first-time claims for unemployment benefits rose 20,000 last week, to 371,000, the highest since July 16. Economists had projected a slight decline.

The report of an unexpected rise in jobless claims "tells you we've downshifted to a soft landing" -- slower growth without inflation pressure, said Cary Leahey, an economist at Lehman Bros.

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Reports of weak April sales from the nation's retailers also got people convinced the economy is slowing, traders said.

The benchmark 30-year Treasury bond rose 1 1/32 point, or $10.31 per $1,000, driving its yield down eight basis points, to 7.16 percent, the lowest since April 27, 1994, when it yielded 7.1 percent.

Earlier in the day, the yield fell as much as 13 basis points, to 7.11 percent. The yield on the two-year note, meantime, fell four basis points, to 6.36 percent.

Yesterday's gain was the biggest since March 24, capping a rally that drove down yields more than a full percentage point from the three-year high of 8.16 percent, set six months ago.

"It looks like the next objective is 7 percent," said Ron Speaker, who manages $800 million of bonds at Janus Capital Corp. in Denver. "You could easily do that if the bulls have their way."

In the frenetic stock market, semiconductor and financial shares were the biggest winners in a day when major stock indexes swung widely. The Dow Jones industrial average was up as much as 37 points during the day and down as much as 25.6 amid four rounds of computer-guided "sell" orders.

"You've got a pivotal employment number out tomorrow," said Todd Clark, managing director in equity trading at Rodman & Renshaw. "We've had a nice run and it's time to take some chips off the table to try to reduce risk."

On Wednesday, the average jumped 44.27, to 4,373.15, its 24th record close this year and its largest daily advance since March 24.

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Philip Morris Cos., Aluminum Co. of America and General Motors Corp. led the Dow's retreat. Philip Morris slumped $2, to $70.625. Salomon Bros. Inc. lowered its investment opinion of the stock.

"People have had a very nice total return in Philip Morris this year and some decided to take profits," said Marc Cohen, analyst at Goldman, Sachs & Co.

The tobacco and food company's stock returned 42 percent so far this year, with dividends.

The broader Standard & Poor's 500 index closed up 0.06, at a record 520.54, after vaulting as much as 4.92, to 525.40, then retreating as low as 519.44. It soared 5.62 Wednesday.

The Nasdaq composite index fell 3.51, to 846.75, one day after jumping 6.53, to a record 856.79. Earlier yesterday, the index rose as high as 856.79, then fell as low as 846.07.

Trading was the seventh-most active day in New York Stock Exchange history, with about 435 million shares changing hands.

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Bullish forecasts from companies at Hambrecht & Quist's annual technology conference spurred buying in technology shares, traders said.

Intel Corp. rose $2.50, to $109.875, after reaching a record $111.50. National Semiconductor Corp. rose 37.5 cents, to $25.125; Microsoft Corp. went up 62.5 cents, to $81.50. Applied Materials Inc. leapt $1, to $62, and Vishay Intertechnology Inc. soared $3.125, to $65.

"Nobody understands the depth of demand in this semiconductor cycle," said Charles Howley, equity trader at SoundView Financial Group Inc.

"This mad scramble is not just because of personal computers; it's spreading over to telephone handsets and other technology."

Other computer stocks gave up their gains. IBM fell 50 cents, to $93.75, after rising as high as $96.125. Compaq Computer Corp. closed down $1.75, at $36.875, after soaring as high as $39.50.


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