FINANCIAL MARKETS : Mexican Stocks Rally; Wall St. Awaits Reports

Mexican stocks posted their biggest one-day gain since mid-July on Wednesday, while U.S. stock and bond markets drifted, awaiting key economic reports due today and Friday.

Meanwhile, Los Angeles County made history with the largest-ever taxable muni bond issue, totaling nearly $2 billion.

Among world stock markets, the Mexico City market stole the spotlight, as the Bolsa index soared 75.23 points, or 2.8%, to 2,740.82.

Analysts said investors were reacting to prospects for healthy third-quarter earnings reports from Mexican companies--just as optimism about U.S. corporate earnings sparked a strong Wall Street rally earlier in the week.

Mexican stocks also attracted bargain hunters who have been waiting for the market to stop declining. The Bolsa hit seven-week lows last week in the wake of the September assassination of a key ruling party official.

On Wall Street, the Dow Jones industrial average eased 1.68 points to 3,875.15 after surging 101 points in the three prior sessions.

Trading was moderate at 270 million shares on the New York Stock Exchange, where losers edged winners by 11 to 10.

Analysts said investors turned cautious Wednesday ahead of several important economic reports that the government will issue today and Friday. Today, the Labor Department reports on wholesale inflation in September. On Friday, investors will see reports on consumer inflation, industrial production and retail sales.

Economists are expecting wholesale inflation to show a 0.1% to 0.2% rise; the consumer inflation rise is expected to be about 0.2%.

Investors who stayed sidelined on Wednesday may be worried that the inflation numbers will come in above expectations, which could trigger renewed fears that the Federal Reserve Board will tighten credit again.

In the bond market, yields inched up Wednesday in a sign of investor nervousness. The 30-year Treasury bond yield rose to 7.90% from 7.86% Tuesday. Yields have been hovering at 28-month highs.

William LeFevre, senior analyst at Ehrenkrantz King Nussbaum, said he did not expect that economic numbers will be strong enough to rattle the markets. If that’s the case, he said, investors will be freer to continue to focus on corporate earnings reports.

But Michael Metz, analyst at Oppenheimer & Co., said stocks may already have discounted any good news in the next batch of economic reports. “The market has worked itself into a no-win situation,� Metz said. “If the numbers are good, the market will be flat, and if not, the market will get hit.�

Among Wednesday’s highlights:

* Quarterly earnings reports continued to move stocks. Winners included Charles Schwab, up 1 1/8 to 32; Federal National Mortgage, up 1/4 to 78 3/8, and Molex, up 2 to 42 1/2.

Among stocks falling on earnings news, Weyerhaeuser lost 1 to 41 1/2, Consolidated Papers dropped 1 1/4 to 49 and CBS fell 9 1/2 to 329 1/2.

* Many tech issues continued to rally, including Apple, up 2 1/2 to 42 1/8; IBM, up 1 1/2 to 73 1/8; Peoplesoft, up 3 5/8 to 53 1/4, and Compaq, up 1 1/8 to 35 7/8. But Advanced Micro Devices slumped 1 1/8 to 23 1/2 after losing a round in its patent suit with Intel. Intel was off 3/4 to 59 3/4.

* Some railroad stocks rose after Lehman Bros. upgraded the stocks. CSX gained 7/8 to 68 7/8 after Lehman raised it to “buy� from “outperform.� Also, Burlington Northern rose 3/4 to 51 and Conrail added 3/4 to 51 3/8.

* Among Southland issues, Hilton rose 1 3/4 to 59 1/2 after Salomon Bros. upgraded the stock to “buy.�

Also, chicken restaurant chain Koo Koo Roo dropped 7/16 to 7 5/16, after it announced Tuesday that a planned $55-million cash infusion from an investment group had been called off.

In the new-issues market, Southland-based retailer Strouds sold 3.3 million shares to the public at 12 1/2 each. The stock closed at 13 1/8 on Nasdaq.

* In overseas trading, Tokyo’s Nikkei average closed above 20,000 for the first time since Sept. 13, rising 268.26 points to 20,089.72.

In London, bullish British inflation news helped the FTSE 100 index jump 27.5 points to 3,100.50.

Frankfurt shares, which have rallied powerfully in recent days, calmed on Wednesday. The DAX index added 6.51 points to 2,077.57.

In South Korea, the composite index rose 11 points to an all-time high of 1,089.66, after Finance Minister Park Jai Yoon suggested the government may embark on faster financial deregulation.

* In the U.S. municipal bond market, Los Angeles County sold $1.965 billion of taxable long-term bonds, the largest such muni offering in history. The proceeds from the complex deal are being used to cover the unfunded portion of the county’s future employee retirement benefits.

The special bonds, the interest on which is federally taxable but not taxed by California, were mainly marketed to corporate and institutional buyers rather than to individual investors.

* In the Treasury bond market, the government issued a rare early-redemption notice. The 25-year T-bonds issued Feb. 18, 1975 and paying 7 7/8% interest were set to mature Feb. 15, 2000, but now will be “called� next Feb. 15.

The Treasury estimated it can save $25 million to $35 million by calling the bonds and replacing them with lower-yielding bonds.

Most Treasury bonds cannot be called before maturity.