Dow Off 43, Broad Indexes Mixed After Late Sell-Off

The Dow Jones industrial average continued to swing wildly Wednesday, ending lower for a third session as bond yields closed mostly higher.

But the stock market overall finished mixed despite the blue-chip Dow’s late sell-off.

Meanwhile, other world markets appear to be going their own ways: Japanese and Mexican stocks hit 1996 lows and German stocks hit a record high.

On Wall Street, the Dow surrendered a 40-point midday gain to close down 43 points at 5,506.21.

Stocks had been supported early in the day by a slight easing in bond yields, despite a sharp rise in January consumer prices. But when the Treasury announced the results of its auction of five-year notes, sentiment in the bond market deteriorated badly.

The Treasury sold $12 billion of the notes at an average yield of 5.68%, well above expectations.

James Kenney, head trader at Prudential Securities in New York, called it “a poorly received auction,� meaning investors were largely uninterested in buying.

There were $2.17 in bids for every $1 in notes offered, well below the $2.60 bid average in the 10 prior auctions of five-year notes.

That could be a sign that many bond market players expect interest rates to continue rising in the months ahead, providing better yields for those who wait.

Bond yields have been surging in recent weeks on growing expectations for a pickup in the economy.

The auction news helped send yields on intermediate-term Treasury bonds soaring again, although they pulled back somewhat at the end of the day.

The two-year T-note yield jumped to 5.38% from 5.27% on Tuesday. However, the benchmark longest-term bond, the 30-year issue, closed unchanged at 6.47%.

The stock market suffered with bonds late in the day, and the Dow’s pullback was made worse by computerized program selling in the final hour.

“Again we’re getting extraordinary intraday volatility, which has to be a warning signal,� said Michael Metz, strategist at Oppenheimer & Co. Metz and some other analysts believe that wide intraday swings indicate the market is losing its upward momentum.

Still, winners managed to edge losers on the New York Stock Exchange and on Nasdaq. Most key market indexes fell only modestly, and the Russell 2,000 index of smaller stocks actually inched up, rising 0.41 point to 325.26, just below its record high.

Overseas, Tokyo’s Nikkei-225 index dropped to an eight-week low, falling 80.43 points to 19,919.97 amid new concern about the health of the country’s banking system.

In Mexico City, the Bolsa index plunged 76.37 points, or 2.6%, to 2,862.59, lowest since December, on fresh worries about rising interest rates and a weakening peso.

But in Frankfurt, the DAX index jumped 27.58 points to a record high of 2,472.50, which some traders said was a sign that investors are shifting money out of German bonds and into stocks.

Among U.S. market highlights:

* Buyers were attracted to many drug, retail and banking issues, while selling interest-rate-sensitive utility issues. The Dow utility index lost nearly 0.9%.

* Internet-related stocks were slammed for a second day by AT&T;’s decision Tuesday to offer cut-rate Internet access. Netcom Online dove 2 3/8 to 20 3/8 after plunging 5 on Tuesday; Uunet slumped 3 3/8 to 28 5/8.

Also in the tech field, chip maker LSI Logic dropped 4 to 31 1/2 after warning of lower-than-expected first-quarter earnings. Cellular phone maker Nokia fell 2 1/8 to 35 1/4 after warning of lower profit in this year’s first half.

But buyers still chased some tech issues, including Cadence Design, up 1 1/8 to 45 1/2; Hewlett-Packard, up 1 5/8 to 103 1/2; and Cheyenne Software, up 1 3/8 to 23 3/4.

* Walt Disney shares rose 7/8 to a record 65 7/8 after the firm reported strong video sales of “Pocahontas.�

* In the new-issues arena, Revlon’s 7.5-million-share offering was priced at 24 a share. It will begin trading today on the NYSE.