Interest rates fell on Monday, as the bond market recovered from Friday's sharp slide.

Stocks fell, with the Dow Jones industrial average losing 13.01 points to 3,532.13.

The dollar declined on profit-taking after rallying Friday.

The currency finished at 1.6200 German marks, down from 1.6272, and at 107.20 yen, from 107.70.

U.S. financial markets showed a mixed reaction to Friday's government report showing surprisingly strong employment growth in May.

Wages Also Increased

The Labor Department reported that nonfarm payrolls expanded by 209,000 last month, and revised the April figure upward to 216,000 from 119,000.

In addition, average hourly wages increased an unexpectedly high 0.66% in May.

The news -- betokening higher inflation and a possible tightening of credit by the Federal Reserve -- hammered the government bond market, with the yield on the long bond rising to 6.91% from 6.86%.

For the stock market, the positive report about employment growth offset concerns about interest rates -- and the market finished about unchanged.

Foreign exchange market participants focused on prospects for higher U.S. interest rates, sparking a rally in the dollar.

Gain on Short-Covering

On Monday, government bond prices recovered on short-covering and buying by municipalities, according to Astrid Adolfson, economist at MCM MoneyWatch.

At 4 p.m., the 30-year bond was up about 1/2 point in price, to yield 6.88%. Yields on other Treasury issues also fell.

The 10-year note yielded 6.06%, down from 6.08%; the five-year note 5.33%, down from 5.34%; and the two-year note 4.29%, down from 4.30%.

Kevin Flanagan, economist at Dean Witter, Discover & Co., said falling commodity prices also bolstered bonds.

The Commodity Research Bureau index, measuring 21 futures prices, fell 0.53 point to 206.29.

The price of gold slipped $2.80 to $375.70 an ounce on the Commodity Exchange.

The next big economic report will come Friday, when the government announces the May Producer Price Index.

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