FINANCIAL MARKETS : Stocks Rebound Despite Rise in Bond Yields

Market Overview * The stock market snapped back Friday from Thursday’s selloff, sending the Dow industrials up more than 20 points as bargain hunters rushed in. In Mexico, meanwhile, stocks posted their biggest gain of the year on strong earnings from Telmex.

* Long-term interest rates rose for a fourth-straight day as profit takers swarmed, sending 30-year Treasury bond yields to their highest level in a month.

* The dollar advanced against most major currencies as a new crisis enveloped European currency markets.

Stocks

The market quickly recovered from Thursday’s 30.18-point Dow loss, as investors focused on perceived bargains among individual stocks.

Analysts were impressed with investors’ willingness to ignore yet another rise in interest rates.

“It was a good showing, especially considering the weakness in the bond market,” said Edward P. Nicoski, market strategist at brokerage Piper, Jaffray & Hopwood Inc.

By the close, the Dow was up 21.52 points to 3,546.74. That left it within 10 points of its all-time high, reached last Wednesday, and up 18.45 points for the week.

The broad market also was strong. Winners topped losers 1,020 to 868 on the New York Stock Exchange and 1,138 to 970 on NASDAQ.

However, traders noted that volume was relatively slow at 222 million shares on the NYSE.

Some healthy second quarter earnings reports helped buoy sentiment, as they had earlier in the week. Still, analysts warned that if interest rates continue to rise, another round of profit-taking in stocks is likely.

Among the market highlights:

* Transportation stocks led the market. The stocks often are bellwethers of stronger economic growth. Conrail jumped 1 5/8 to 52 5/8, Norfolk Southern gained 1 3/8 to 62 7/8, Ryder jumped 1 1/2 to 32 1/4 and Delta Air Lines rose 1 to 52.

* Many industrial issues posted big gains. Caterpillar soared 2 5/8 to 80 1/4 after reporting second-quarter earnings of 66 cents a share, contrasted with a loss of 63 cents a year ago. Sales rose a strong 12%, despite the slow economy.

Other industrial stocks advancing included Deere, up 1/2 to 65 1/8; Owens-Corning, up 3/4 to 41 1/8; Stanley Works, up 3/4 to 41 1/2; Ingersoll-Rand, up 1/2 to 33 1/4; and Alcoa, which rose 1 to 70 1/2.

* Energy stocks were winners for a second day, helped by better than expected earnings reports. Exxon jumped 1 to 65 1/8 and Mobil gained 1 1/4 to 71. Both reported favorable earnings. Among other oil and gas stocks, Chevron rose 1 1/8 to 87 5/8, Arco added 1 to 115 1/2 and Royal Dutch was up 1/2 to 92 5/8.

* Disney soared 2 1/8 to 39 1/4 after Prudential Securities upgraded the stock to buy from hold . The stock has recently been trading at its 1993 low. But another Southland issue--Vons Cos.--fell 1 1/4 to 20 1/8 after Paine Webber downgraded the stock to neutral from buy.

* On the downside, food stocks were slammed for a second day, the latest casualties among consumer-products stocks. Ralston-Purina tumbled 3 5/8 to 39 after reporting lower earnings. Campbell Soup sank 2 5/8 to 36 7/8 after brokerage Goldman, Sachs & Co. warned of slower earnings growth.

Kellogg Co. also reported lower earnings, and the stock lost 1/2 to 49 3/8, a new 1993 low.

* Among new issues, Petsmart, an operator of super-stores catering to dogs, cats and other pets, went public at $18 a share on NASDAQ and hit 25 by the close.

In Mexico City, meanwhile, the Bolsa stock index rocketed 64.97 points, or 3.9%, to 1,745.66--its biggest gain this year--spurred by a 12% quarterly earnings gain at phone monopoly Telmex. On the NYSE, Telmex jumped 3 1/8 to 49 3/8.

The news wasn’t so good in Tokyo. The Nikkei average slid 381.24 points to 19,734.57 on renewed political uncertainties.

In London, the FTSE-100 index added 7.6 points to 2,827.7. In Frankfurt, the DAX index rose 7.31 points to 1,830.83.

Credit

Long-term interest rates rose across the board, another blow to the bond market’s powerful rally.

Traders said that negative sentiment triggered by Federal Reserve Chairman Alan Greenspan’s testimony before Congress this week continued to encourage profit-taking in bonds.

By the close, the yield on the Treasury’s benchmark 30-year bond was 6.70%, up from 6.65% on Thursday and the highest since June 25. One week ago, the yield was 6.54%, a historic low.

Before Greenspan began his testimony, the Treasury market had been in the midst of a powerful monthlong rally, fueled in part by hopes that inflationary pressures were not strong enough to warrant a hike in short-term interest rates.

But market expectations were dashed on Tuesday when Greenspan told Congress the Fed was ready to raise rates to contain inflation.

However, many analysts insist the economy isn’t strong enough to support higher rates, and that Greenspan’s comments merely gave profit-takers an excuse to sell bonds after the long rally. Many predict that rates will soon resume their downward course.

Other Markets

For a second day, investors turned to the dollar as a safe haven from the pressures in the European Exchange Rate Mechanism.

The dollar jumped to 1.72 German marks, up from 1.704 on Thursday, and 106.85 Japanese yen, up from 105.26.

Meantime, gold for current delivery closed at $389.80 an ounce, off $1.30. Silver closed at $4.96 an ounce, off 3.5 cents.

On the New York Merc, light sweet crude oil for September rose 12 cents to $17.75 a barrel, stabilizing despite confirmation that OPEC’s planned emergency meeting was called off.