Inflation Talk Gets to Bonds; Stocks Recover

A strong quarterly profit report from Eastman Kodak on Thursday propelled the Dow Jones industrial average to a new high despite an inflation scare that rattled investors’ nerves.

The Dow index closed up 38.49 points at 6,765.37, edging out Tuesday’s record of 6,762.29.

Broad-market measures posted modest gains, with several closing at record highs after recovering from an afternoon slide brought on by an increasingly jittery bond market.

The market clawed its way back into the plus column following a sell-off that erased a gain of 55 points in the Dow after Federal Reserve Board Gov. Laurence Meyer’s said he saw a risk of higher inflation.

Both the stock and bond markets have been on edge, reacting to any news or economic data that might tip the Fed toward raising interest rates.

“This market has got a bit of a case of nerves,” said Michael LaTronica, director of research at Gruntal. “But that’s a symptom of a market that has come as far as this one has in the last couple of years.”

But while stocks recovered, bonds stayed weak. Prices edged lower in the morning after the Labor Department reported that the number of first-time claims for jobless benefits fell last week to a three-month low.

The report was the latest in a series of robust economic signals that have undermined hopes that the pace of business has slowed enough to keep a lid on inflationary pressures such as rising production costs.

The bond market’s slide worsened in the afternoon, boosting interest rates and pulling back stocks, as Meyer stoked inflation jitters in a speech. Concerns about how well the market would absorb a huge corporate debt offering also weighed heavily on bond prices.

Although recent data have shown that inflation remains under control, investors worry that the Fed might raise its lending rates to slow borrowing and spending as a precautionary measure. Rising inflation or interest rates make fixed-income investments such as bonds less attractive.

The yield on the 30-year Treasury bond rose from 6.79% on Wednesday to nearly 6.86% before settling at about 6.82%. Despite the jump in rates, however, stocks pulled higher again.

“The market sneezed at [Meyer’s] comments,” said Alfred E. Goldman, vice president at A.G. Edwards & Sons. “Stocks bent but they didn’t break, and the buyers came in.”

Advancing issues outnumbered decliners by nearly an 8-7 margin on the New York Stock Exchange, where volume was heavy again at 532.33 million shares, up from 525.02 million on Wednesday.

The Standard & Poor’s 500-stock index rose 2.55 points to 769.75, and the NYSE’s composite index rose 1.08 points to 406.12. Both marks were new highs. The Nasdaq composite index rose 6.93 points to 1,340.46.

Among Thursday’s highlights:

* Kodak rose 4 1/4 to 85 1/2 as the Dow’s biggest gainer, followed by Procter & Gamble, up 2 3/8 at 111 5/8.

* Nasdaq was buoyed by Sun Microsystems, up 2 13/16 to 31 1/16 after reporting late Wednesday that its profit grew 41% in the latest quarter, beating analyst forecasts.

Digital Equipment rose 2 1/2 to 36 3/4 after the company’s quarterly earnings topped analysts’ estimates.

* General Electric posted fourth-quarter profit that matched analysts’ estimates and its stock ended off 1 3/8 at 101 1/2.

Overseas, Tokyo’s Nikkei stock average rose 0.3%, Frankfurt’s DAX index rose 0.2% and London’s FTSE-100 rose 0.9%.

Market Roundup, D6