CREDIT : Bonds Prices Drop on Profit Taking, War Talk

Bond prices slipped Friday in light, volatile trading as participants took profits and fears grew that war could erupt in the Middle East.

The Treasury’s benchmark 30-year bond fell 11/32 of a point, or $3.44 per $1,000 face amount. Its yield, which rises when prices fall, rose to 8.79% from 8.75% Thursday. The Treasury had sold new 30-year bonds on Thursday at an average yield of 8.87%.

Traders said the market had little reaction to a report showing inflation moderated last month. The government said wholesale prices in July edged down 0.1%.

Analysts said the report, which normally would be positive for the bond market, was discounted because it occurred before the Middle East crisis sent oil prices surging.

Instead, bond prices were sent lower by bondholders who sold issues to take profits after the Treasury’s quarterly refunding, which concluded Thursday, said Gib Clark of Daiwa Securities.

In addition, investors concerned that the Iraqi situation could escalate were unwilling to hold large amounts of bonds over the weekend, furthering the selloff.

The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8%, unchanged from late Thursday.

CURRENCY

Dollar Closes Down in Light Trading

The dollar finished lower against most major currencies. Analysts said weakness in the U.S. economy and the prospect of lower U.S. interest rates weighed on the dollar. Trading was light.

The dollar rose to 150.40 yen in New York from 149.805 late Thursday. But it slipped to 1.591 German marks from 1.596.

COMMODITIES Mideast Tension Sends Gold Soaring Gold prices raced to their highest levels in nearly five months Friday on fiery rhetoric from Iraqi President Saddam Hussein.

On other markets, oil futures jumped; soybeans rallied; wheat futures plunged, and livestock and meat futures were mixed.

Gold for current delivery climbed $11.10 an ounce to close at $396.90 on New York’s Commodity Exchange.

Silver futures settled at 11.1 to 12.7 cents higher, with August at $4.97, up 11.2 cents.

Tables begin on D5.