Interest rates fell on Thursday, as the bond market rallied in a delayed reaction to a slew of weak economic indicators this week.

At 4 p.m., the yield on the 30-year Treasury bond was down to 6.73%, from 6.77% on Wednesday. Ten-year notes yielded 5.85%, down from 5.88%; two-year notes yielded 4.14%, down from 4.17%; and three-month bills yielded a bond-equivalent 3.16%, down from 3.1%.

Bonds Boost Stocks

Strength in the bond market - and a strong earnings forecast from blue-chip Goodyear Tire and Rubber - helped stocks. The Dow Jones industrial average finished up 23.80 points to 3,490.61. The Standard & Poor's 500 index rose 3.43 to 446.62, while the Nasdaq composite index gained 3.94 points to 688.73.

An Inflation Scare, Then a Surge

Reports that France and Germany were considering coordinated cuts in interest rates helped the dollar. The currency finished in New York at 1.7065 German marks, up from 1.6913. The dollar was quoted at 108.70 yen, down from 109.15.

The record low closing yield on the 30-year bond is 6.72%, reached most recently on April 20.

The low yield is surprising given the recent market scare about inflation. These worries, which have flared intermittently since mid-April, rose again on Wednesday after The New York Times reported that the Federal Reserve may increase short-term interest rates before the end of summer. The report caused a selloff in the bond market.

Mark Grant, managing director for capital markets at Chicago-based Rodman & Renshaw, said the bond market came roaring back on Thursday on the realization that the economy is sluggish and inflation is under control.

Weak Indicators

The Labor Department reported Thursday that new claims for unemployment insurance rose 8,000 in the week ended June 19, about 7,000 more than expected.

Earlier in the week, the government reported a weaker-than-expected 1.6% drop in orders for durable goods and revised downward growth in gross domestic product in the first quarter to 0.7% from 0.9%.

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