Treasury bond yields rose Tuesday, influenced by another selloff in European bond markets and by inflation fears renewed by soaring commodity prices.
The stock market, however, showed little reaction in light post-holiday trading. The Dow industrials added 1.23 points to 3,758.37.
In the bond market, yields were marginally higher across the board. The Treasury's 30-year bond yield closed at 7.43%, up from Friday's 7.39%.
Bond traders were skittish in the wake of a rebound in the Commodity Research Bureau's index of 21 key commodities. The CRB, which had tumbled late last week as Midwest rains depressed grain prices, shot up Tuesday as forecasters predicted a new round of hot weather for the largely dry grain belt.
The CRB jumped 4.57 points, or 2%, to 235.45. It had peaked a week ago Monday at a 3 1/2-year high, before profit takers moved in.
Soybean, corn and wheat prices surged Tuesday. Also, traders piled back into coffee, cocoa, lumber and precious metals futures, reigniting the bull trends in those commodities. Near-term gold futures gained $2.40 to $387.10 an ounce on the Comex. Silver rose 7.6 cents to $5.53.
"The world economy is a lot hotter than people think," said Leo Doyle, economist with British merchant bank Kleinwort Benson. "The underlying strength in commodity prices is a sign of inflationary danger."
Many economists disagree, however. In fact, the federal government on Tuesday reported a drop in April home sales, suggesting that higher U.S. interest rates are working to slow the economy.
But that report failed to help bonds much. Traders said an overnight surge in European bond yields--adding to last week's jump in yields there--unnerved U.S. investors.
For the second time in a week, the German government scrubbed a scheduled bond auction, underscoring slack demand in the German bond market. The German central bank last week had indicated it might be finished cutting short-term interest rates, news that riled the bond market by suggesting that Europe's economic rebound may be at hand.
In European stock markets, Paris' CAC index tumbled 22.61 points to 2,029.90. But Frankfurt's DAX index shook off bonds' woes, rising 9.55 points to 2,127.70. In London, the FTSE-100 index added 4.1 points to 2,970.5.
Elsewhere overseas, Tokyo's Nikkei index continued its rally, rising 134.62 points to 20,973.59. In Mexico City, the Bolsa index eased 1.68 points to 2,483.73.
On Wall Street, stocks drifted to a mostly negative finish.
In the broad market, losers outnumbered gainers by about 3 to 2 on the Big Board, where the volume was a slow 215.8 million shares.
Smaller stocks had a similarly unexciting session, though the Nasdaq composite index gained 2.05 points to 735.19.
Among Tuesday's highlights:
* The Dow industrials gained some support from Chevron, which climbed 1/2 to 87 after Merrill Lynch & Co. raised the investment rating on the stock.
Also, Dow stock American Express surged 1 5/8 to 27 5/8 after completing the spinoff of its Lehman Bros. brokerage unit, which closed at 18 on its first official day of trading.
* One of the day's more conspicuous losers was Intermagnetics General, which tumbled 4 1/2 to 18 7/8 in heavy trading. An article in this week's Barrons said the company's fourth-quarter results will show improvement over the year-earlier levels but that sales have been sinking since 1991.
* Blockbuster Entertainment ended up 1 1/4 to 28 1/8. It was upgraded to "buy" from "market performer" by Robertson Stephens.
* McDonald's rose 1 to 62. Friday the company announced a 2-for-1 stock split and raised its dividend by 12%.
* Retailer Bombay rallied 1 1/4 to 15 7/8 after it posted a 23% rise in May sales at stores that have been open at least a year.
In the currency market, the dollar rose against the yen and most major currencies. At the close, the dollar was quoted at 104.85 Japanese yen, up from 104.28 yen Friday. It rose to 1.647 German marks from 1.643 marks Friday.
The dollar was surprisingly unaffected by the negative economic news. Lately the dollar has been moving in tandem with bonds, but Tuesday was an exception.
"The dollar didn't come off," said Dorit Ronnen, foreign exchange trader at the New York office of Bank Leumi Trust Co. "It was a pretty dull market."
Ronnen said the dollar was lower against the mark in early trading, as traders tested whether central bankers would intervene in support of the currency.