Municipals backed off midday highs Friday but still finished on the upside, helped by the positive sentimeat that carried over from Thursday's gins.

"The market's up but it's not doing anything," a municipal trader said, "It's a typical Friday. It's over."

A second trader said the market showed strength early, but trading became a bit "choppy," later in the day. Some bonds, however, were still up 1/4 to 1/2 point near the close.

Dollar bonds ended Friday 1/4 point higher overall, after having been up 3/8 to 1/2 point at midday, a municipal analyst said. Yields on. high-grade issues fell by two basis points overall.

In debt futures, the September municipal contract settled down 2/32 at 90 15/32s.

The trader said the markers early gains, made after economic indicators were released appeared a bit overdone. So municipals later appeared to be giving back some of the gains, though not to the extent that governments did.

This week, all eyes are on California's $4 billion revenue anticipation warrant offering and New York Please turn to City's $750 million in general obligation bonds.

James Kochan, head of fixed-income asset management at Robert W. Baird, said he was "disappointed that [Treasuries] couldn't hold the better levels of this morning."

The 30-year Treasury bond, which ended down 1/8 point to yield 7.54%, gained nearly 1/2 point after the Commerce Department reported that business inventories rose 1.1% in May to a seasonally adjusted $884.77 billion. That marked the largest increase in nearly seven years.

Kochan said the market should have done better, given the "bond friendly" economic indicators it received last week. Thursday's retail sales figure was especially weak, he said.

The bond market has had such short covering rallies before, and has been unable to sustain them, Kochan said. Lately, the market seems to be at the dollar's mercy, heading up when the dollar rises against the Japanese yen, and down when it falls, he said.

"We still need the dollar to stabilize or improve," Kochan said.

This week, Kochan sees the potential for trouble.

Currency traders will be watching for the June trade figures on Tuesday, and the bond market is likely to react to that.

On Wednesday, Federal Reserve Chairman Alan Greenspan delivers his semi-annual Humphrey Hawkins testimony to Congress. Players will play close attention to Greenspan's remarks in an effort to gauge if and when the Fed is likely to tighten monetary policy.

In rating news Friday, Standard & Poor's Corp. affirmed its A-minus rating on New York State's $5.53 billion of general obligation bonds after reviewing the state's adopted fiscal 1995 budget.

The rating outlook remains positive.

"While S&P recognizes that many of the positive credit factors outlined at the time of the rating outlook change to positive from stable last February remain, an upward revision of the bond rating remains premature," the agency said in a release. "The rating reflects a slowly expanding economic base, a rising yet still manageable debt burden, and historically weak but recently improved financial operations."

Elsewhere, Standard & Poor's Blue List of municipal bonds was down $219.5 million on Friday to $1.48 billion.

Today, the 30-day visible supply of municipal bonds totals $8.65 billion, down $417 million from Friday. That comprises $6.11 billion of competitive bonds, up $432 million from Friday, and $2.54 billion of negotiated bonds, which is down $849 million from Friday.

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