FINANCIAL MARKETS : Dow Off 18.66 on Dim Hope of Rate Cut

Blue chip stocks fell and bond yields rose Friday as surprisingly strong June retail sales dimmed prospects for another interest rate cut by the Federal Reserve.

But the Nasdaq index rose to set its fourth record for the week on rising technology stocks.

The Dow Jones industrial average fell 18.66 to 4,708.82 after recouping about half of a nearly 40-point drop early in the session. It gained 6.09 points on the week. In the broader market, declining issues beat advances by about 7 to 4 on the New York Stock Exchange. Big Board volume fell to a moderate 312.94 million shares, down from 388.49 million Thursday.

The Nasdaq Composite index rose 5.18 points to 999.33, beating the previous closing high set just Thursday.

Bond yields rose Friday as reports on consumer prices and retail sales suggested the economy isn’t slowing down as much as previously thought.

The new data diminished the prospect that the Federal Reserve would soon lower interest rates again to stimulate the economy.

Since the Fed cut the main lending rate for banks by a quarter-point last week, there had been speculation that another cut would occur when its policy-makers meet again next month. A rate reduction makes bonds already in the market more valuable.

That speculation seemed to evaporate Friday as the benchmark 30-year bond yield five basis points to 6.60%. Its price, which falls when yields rise, dropped a full point before recovering some ground in the afternoon. It finished down 21/32 point, or $6.56 per $1,000 in face value.

Retail sales rose 0.7% in June following an upward revised May gain of 0.9%. The government also said that output at the nation’s factories, mines and utilities managed a 0.1% increase in June after after three straight months of declines.

The growth was not accompanied by higher inflation. Consumer prices rose a mere 0.1% in June, the best showing since a similar tiny increase last November.

But the good news on inflation was not enough to appease investors, who worried that an expanding economy might discourage the Federal Reserve from further lowering short-term interest rates after last week’s cut of one-quarter of a percentage point, or 25 basis points.

“The perception has been that the Fed normally moves in more than one increment, and therefore the hope was that they would be cutting sometime [soon] another 25 basis points,” said Ned Collins, head stock trader at Daiwa Securities America.

Hugh Johnson, First Albany Corp.’s market strategist, said that while Friday’s economic figures caused some consternation in the bond market, they should be positive for stocks. Johnson said stocks might stop moving in tandem with bonds and go their own way.

“You couldn’t ask for more,” Johnson said. “The outlook for inflation continues to look good. This is very perfect-world stuff; you couldn’t ask for better numbers.”

Other broad-market indexes lost ground early in the session, as technology shares dropped on somewhat disappointing semiconductor data, although they recovered in the afternoon, softening losses in the broad-market indexes.

The NYSE’s composite index fell 0.89 point to 298.90. The Standard & Poor’s 500-stock index fell 1.11 point by 559.89.

But some big name technology stocks still scored solid gains.

Among Friday’s highlights:

* Intel Corp. rose 1 7/8 to 75 1/2, while Texas Instruments gained 1/8 to 153 3/4 and Motorola rose 5/8 to 75 3/4. International Business Machines rose 1/8 to 103 7/8 and Micron Technology gained 1 1/2 to 63.

* Microsoft added 2 5/16 to 102 7/16, after the software maker finished writing Windows 95, a long-awaited update of the foundation program for most personal computers.

Earnings disappointments took their toll on some stocks.

* Colgate-Palmolive dropped 3 7/8 to 68 1/4. The personal-care products maker estimated its second-quarter net profits at 95 cents per share, below the analysts’ previous estimate of $1.04 to $1.05.

* Philip Morris fell for the second straight session, losing 1 to 74 3/4 on the FDA’s renewed efforts to regulate nicotine.

* Allstate fell 1 1/4 to 31 1/2. The company said the stock has been volatile recently because of a distribution of shares this week to Sears, Roebuck & Co. Inc. shareholders.

Overseas, Frankfurt’s 30-share DAX average closed down 29.52 points at 2,184.90. In London, the Financial Times 100-share average fell 18.0 points to 3,429.2, while Tokyo’s 225-share Nikkei average rose to 16,517.70, up 12.03 points.

Mexico’s Bolsa index fell 43.30 points, or 1.68%, to 2,531.49.