Continuing to tilt its debt offerings toward the short term, the government announced on Wednesday a 16% increase in the size of its monthly two-year note sale.

The Treasury said it will auction $16 billion in two-year notes next Tuesday, up $250 million from the previous month's sale.

At the same time, the five-year note sale, scheduled for next Wednesday, was left unchanged at $11 billion.

Lowering Interest Costs

The increase in the two-year notes is part of a Clinton administration effort to scale back offerings of long-term bonds and increase short-term issues.

The change is intended to lower the government's interest costs.

Specifically, the Treasury plans to reduce sales of 30-year bonds to twice a year from the current quarterly schedule and increase sales of short-term bills and two- and three-year notes.

Bond Prices Unaffected

Steve Wood, money market economist for BankAmerica Corp., said the market had expected the increase in the two year notes and the announcement had little impact on government bond prices.

In fact, bond prices were stuck in a very narrow trading range on light volume throughout the day.

News that Democrats on the Senate Finance Committee have reached agreement on the compromise on President Clinton's economic plan provided some late support.

Faltering Recovery

The 30-year bond was up in price, with the yield staying at 6.81%. The 10-year note was up 3/32, to yield 5.93%, while the two-year note gained 1/32, to yield 4.07%.

Wednesday's economic news reaffirmed the view that economic growth is sputtering.

The government reported that housing starts increased 2.4% in May, down from a 7% increase in April. The consensus estimate among economists was for a much bigger increase in May.

The Finance Committee news also helped stocks post a latesession rally. The Dow Jones industrial average finished 19.65 points higher, at 3,511.65.

The dollar closed at 1.6565 German marks and at 106.37 yen, up from 1.6455 marks and 105.75 yen. The foreign exchange market anticipates a cut in German interest rates, which would benefit the dollar.

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