Bond Yields Decline Further on Saudi Attack

Long-term Treasury bond yields fell further on Monday as a terrorist attack in Saudi Arabia caused jitters on Wall Street and sent some investors in search of relative safety.

Bonds also were helped by new hints from European and Japanese officials that they might intervene in currency markets to halt the dollar’s decline. That could boost demand for Treasury securities.

The stock market ended mostly lower. The Dow Jones industrials eased 45.15 points, or 0.4%, to 10,547.06.

The technology-dominated Nasdaq composite index bucked the trend, advancing for a fourth straight session.

Bond prices had rallied sharply on Friday, driving yields down, after the government said the economy added a net 112,000 jobs in November. The number was well below most analysts’ expectations.

The report raised new doubts about the economy’s growth rate, and so took pressure off the bond market. Yields had moved up sharply in recent weeks on concerns that growth was accelerating, boosting inflation risks.

The yield on the 10-year Treasury note, a benchmark for mortgages, tumbled from Thursday’s four-month high of 4.41% to 4.25% on Friday after the employment news.

The downtrend continued Monday after Islamic militants attacked the U.S. consulate in Jidda, Saudi Arabia. Investors often look to Treasuries as a haven in times of trouble.

The 10-year T-note yield ended the day at 4.22%.

The latest comments by European and Japanese officials opposing a weaker dollar also played well in the bond market. If foreign central banks were to intervene to stop the dollar from going lower they probably would sell their own currencies and buy dollars, using the latter to buy Treasury securities.

Government finance officials “have stepped up their rhetoric,” said Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort Wasserstein, a major bond dealer. “If they come back to the plate and intervene, it will make a difference to Treasuries.”

In the stock market, the attacks in Saudi Arabia contributed to a general mood of caution Monday. Oil prices rose modestly, fueled by the attacks and by reports that the Organization of the Petroleum Exporting Countries might seek to curtail output. Near-term crude oil futures in New York added 44 cents to $42.98 a barrel.

Still, many equity investors are choosing to move to the sidelines rather than pull out, traders said. The Standard & Poor’s 500 index edged down 0.92 point, or 0.1%, to 1,190.25. The index has barely budged in the last three sessions after reaching a three-year closing high of 1,191.37 on Wednesday.

Falling stocks outnumbered winners by about 4 to 3 on the New York Stock Exchange and Nasdaq.

“The rally ran into some headwinds Thursday and Friday, and the news on oil prices overnight wasn’t great, but this market has shown some incredible resilience,” said Ken Tower, chief market strategist at Charles Schwab’s CyberTrader unit. “This is a very strong rally, and it should continue at least through the end of the month, with a few bumps here and there.”

Stocks soared in November after President Bush was reelected and on optimism about the U.S. economy. Falling oil prices last month helped to lift investors’ mood.

Technology stocks have led the market’s latest advance. The Nasdaq composite index gained 3.29 points, or 0.2%, to 2,151.25 on Monday, nearing its 2004 closing high of 2,153.83 reached Jan. 26.

The Nasdaq index is up 8.9% since Oct. 29. By contrast, the Dow is up 5.2% since then.

The next big hurdle for financial markets is expected to be the meeting of Federal Reserve policymakers Dec. 14. Despite the weak November employment report, the Fed is expected to raise its benchmark short-term rate for the fifth time this year, from 2% to 2.25%.

Among Monday’s market highlights:

* Technology issues bolstering the Nasdaq index included Apple Computer, up $3.10 to $65.78; Qlogic, up $1.77 to $37.98; and Check Point Software, up 84 cents to $25.04.

* Real estate investment trust shares rallied, lifting a Bloomberg index of 152 REITs to a record high. Vornado Realty gained 70 cents to $74.70 and Essex Property jumped $1.49 to $82.78.

* On the downside, the Dow was hurt by brokerage downgrades of two of its 30 stocks. Drug giant Pfizer fell 68 cents to $27.21 after Merrill Lynch lowered the stock to “neutral” from “buy,” citing concerns about earnings growth.

Alcoa dropped 44 cents to $32.42 after Goldman Sachs said the aluminum leader would face higher material costs and a complex labor situation in 2005. Goldman cut the shares to “in-line” from “outperform.”

* Industrial equipment stocks were mostly lower after truck maker Navistar gave a disappointing profit-growth outlook for 2005. Navistar tumbled $2.42 to $38.73.