FINANCIAL MARKETS : Bond Yields Fall, Stocks Rise on Greenspan’s Remarks on Economy

Treasury bond yields plummeted to a 5 1/2-month low and stock prices rose Wednesday following Federal Reserve Board Chairman Alan Greenspan’s remarks that the economy is slowing and that the central bank might hold interest rates steady.

Greenspan hinted in comments before the Senate Banking Committee that the central bank is prepared to cut interest rates should economic growth slow too sharply--even if inflation rises.

Investors interpreted Greenspan’s remarks as a signal that the Fed is nearly finished raising rates after a yearlong effort to slow growth to a pace that would not fuel inflation.

Rising rates have hammered the value of Treasury securities, which pay fixed rates of return.

Bond yields fell modestly after Greenspan made those comments. But yields fell sharply around mid-afternoon, after the Treasury Department finished auctioning off $17.25 billion in fresh two-year notes.

By the end of the day, the bellwether 30-year bond yield fell to 7.54%, just above a 5 1/2-month low of 7.53% reached on Sept. 6. It closed at 7.60% on Tuesday. Its price, which rises when yields fall, jumped 3/4 point, or $7.50 per $1,000 in face value.

The Dow Jones industrial average ended 9.08 points higher at 3,973.05, posting its second consecutive gain. The blue-chip index hit the 3,986 level in morning trading but closed below its all-time high of 3,987.52, reached last Thursday, and below the critical 4,000 level.

In the broader market, rising issues led decliners by about 5 to 4 on the New York Stock Exchange. NYSE volume was heavy at 339.48 million shares, up from 309.05 million on Tuesday.

Blue-chip issues made the strongest gains, but broad market indexes also moved higher. The NYSE’s composite index rose 1.06 points to 263.04. The Standard & Poor’s 500-stock index added 2.33 points to 485.07.

The Nasdaq composite index of mostly smaller issues gained 3.31 points to 787.93. The American Stock Exchange’s market value index climbed 1.07 to 448.58.

The market opened tentatively higher, then extended its gains after Greenspan’s testimony.

The dollar, meanwhile, declined against most key currencies in European trading and touched a 2 1/2-year low against the German mark. Investors sold the greenback after Tuesday’s announcement that the United States will offer a $20-billion aid package to help Mexico out of its currency crisis.

In dollar rallied in overseas markets but fell back in U.S. trading after Greenspan’s hint that U.S. interest rates have peaked.

In New York trading, the dollar closed at 1.469 marks, down from 1.470 on Tuesday. The dollar also was changing hands at 96.90 Japanese yen, down from 97.10.

The U.S. aid announcement helped Mexican stocks, however. The Bolsa index rallied 29.09 points, 1.72% above Tuesday’s close of 1,708.26. Telefonos de Mexico rose in sympathy with the Mexican market, closing up 3/4 at 29 3/4.

Among Wednesday’s highlights:

* Among the 30 Dow components, General Electric rose 1 1/4 to 55 1/8; Caterpillar rose 7/8 to 52 7/8; General Motors added 3/4 to 41 5/8, and AT&T; climbed 3/4 to 51.

* High-technology stocks, because of investor expectations of strong growth in the group, were the market’s leaders. Micron Technology gained 3 to 59 1/8, and Hewlett-Packard added 1 3/8 to 115 1/2. Intel rose 5/8 to 79 5/8 after it entered into a cross-licensing agreement with Micron for flash memory devices. Dell Computer rose 1 1/2 to 46 after reporting higher-than-expected earnings on Tuesday.

* Retailer Nordstrom fell 3 1/2 to 41 5/8 with its quarterly earnings disappointing Wall Street.

* Newbridge Networks dropped 4 1/8 to 35 3/4. The Canadian communications firm posted record third quarter earnings on Tuesday, but the numbers were still below market expectations. Traders said Merrill Lynch’s downgrading the stock added pressure.

* Deere & Co. jumped 1 7/8 to 78 after the farm equipment maker reported strong fiscal first quarter earnings.

* Fleet Financial rose 1/2 to 30 7/8 and Shawmut rose 1/2 to 25 1/2. Fleet agreed on Tuesday to acquire Shawmut for $3.7 billion in stock.

Initial public stock offerings attracted strong interest on the Nasdaq market. Healthcare information provider HCIA Inc. rose 5 from its $14-a-share starting price. MedPartners, which develops health-care delivery networks, shot up 3 3/4 from its starting price of $13.

* Interest-rate sensitive issues also rose. Citicorp ended 1 1/4 higher at 43 3/4.

Other overseas stocks were mixed. Tokyo’s 225-share Nikkei average gained just 10.40 points to finish at 18,106.65. The German DAX 30-share average ended off 3.88 points at 2,093.16, and the London Financial Times 100-share average closed at 3,019.5, down 3.9 points.