WASHINGTON - Treasury bills surged while bonds inched down for the second straight day yesterday in the wake of the growing belief that the Federal Reserve won't raise short-term rates again until next year.

Late yesterday, yields on three-month bills fell 15 basis points to 5.69% and yields on six-months bills dropped eight basis points to 6.48%. Most notes also gained.

On the long end, the benchmark 30-year bond slipped three ticks to 95 21/32 with a 7.87% yield. The 10-year note was unchanged at 100 14/32, yielding 7.81%.

Analysts cautioned against reading too much into yesterday's market due to very thin trading, which is at least partly a function of it being close to the end of the year.

"Trades were kind of hit and run yesterday," said David Ader, a market strategist at Technical Data in Boston.

Fed officials are scheduled to meet on Dec. 20, and then again on Jan. 31 and Feb.1. Recent inflation and growth reports, though still portraying a very healthy economy, have encouraged the market that the Fed is ahead of the curve in fighting inflation, analysts said.

Yesterday, the Commerce Department reported that business inventories grew for the seventh straight month in October. And the Philadelphia Fed Bank reported its index of regional manufacturing activity slipped a little in December.

Another rate hike, nonetheless, is expected at the Fed's first policy meeting next year, analysts said. Treasury Market Yields Previous Previous Thursday Week Month3-Month Bill 5.58 5.80 5.466-Month Bill 6.46 6.43 6.021-Year Bill 7.06 7.01 6.592-Year Note 7.50 7.49 7.163-Year Note 7.63 7.65 7.485-Year Note 7.71 7.74 7.767-Year Note 7.77 7.75 7.8710-Year Note 7.79 7.78 7.9930-Year Bond 7.86 7.85 8.12 Source: Cantor, Fitzgerald / Telerate

Stats

Stock Market: The Dow Jones Industrial Average rose 19.18 points yesterday, to close at 3765.47.

Foreign Exchange: In late New York trading yesterday, the dollar was quoted at 100.35 Japanese yen and 1.5725 German marks.

Commodities: The Commodity Research Bureau's index closed up 1.15 points yesterday, at 230.79.

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