The second leg of the Treasury Department's fund-raising effort this week met only average demand.

The tepid response to the new issue of five-year notes on Wednesday contrasted with the enthusiastic one given to the previous day's two-year note sale.

"It was a little bit of a reality check," said Douglas Schindewolf, money market economist for Smith Barney, Harris Upham & Co. "The market had been on fire."

The $11 billion in five-year notes were awarded at a yield of 4.87%, about what traders had expected just before the Treasury began the auction Wednesday afternoon.

Nonetheless, the auction rate was the lowest ever for the five-year note. At the previous auction, on July 28, the auction yield was 5.25%.

Bids exceeded accepted offers by a ratio of 2.6 to 1, virtually the average result over the last several auctions of this security. Tuesday's two-year sale received a "bid-cover" ratio of 3.5 to 1.

Government Securities Prices Gain

Prices of government securities gained after a short retreat just after the auction.

The price of the 30-year bond was up 1/4, lowering the yield to 6.17% from 6.19% on Tuesday. Over the last month, the yield on the long bond is down about a quarter point.

Ten-year notes were up 3/8, and the yield fell to 5.50% from 5.54%. Two-year notes gained 1/16, lowering the yield to 3.87%from 3.91%. The bond-equivalent yield on the three-month Treasury bill was unchanged at 3.05%.

Report Spurs Short-Lived Surge

John Canavan, market analyst at Stone & Mc-Carthy Research Associates, said rumored purchases of two-year, three-year, and five-year Treasuries by the Federal Reserve provided early support for the market.

The day's economic data had little lasting impact.

The Commerce Department reported that new orders for durable goods fell 3.8% in July, the biggest decrease since December 1991. The market initially rose on this indication of weak economic growth.

But bonds fell back once news spread that the decline was due to a drop in aircraft orders. Without the drop in transportation orders, durable goods rose 1.3%, economists said.

Adding to the negative tone in the bond market, the government reported that sales of existing homes in July rose 5.4%.

Blue-Chip Stocks Remain Strong

Offsetting these reports, however, were comments by Federal Reserve Board Governor Lawrence Lindsey, one of the fiercest inflation fighters on the Fed, that he was happy with the latest inflation numbers.

Blue-Chip stocks again were strong, led by airline issues. The Dow Jones industrial average gained 13.13 points to a record 3,652.09. The Standard & Poor's 500 index rose 0.36 to 460.13. But the Nasdaq composite index lost 1.49 to 733.65.

The dollar gained against the German mark on speculation that the Bundesbank will cut interest rates at its meeting this morning. The dollar finished at 1.6842 marks, versus 1.6790 on Tuesday.

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