FINANCIAL MARKETS : Long-Bond Yield Soars Past 7% as Fed Meets : Trading: Gold jumps $8 an ounce, to $375.50, on renewed inflation worries. But stocks shake it off, closing only slightly lower.

Inflation paranoia sent long-term bond yields and gold prices up sharply on Tuesday, as the Federal Reserve met in Washington to discuss its interest rate policy.

The rise in bond yields sent the rate on the closely watched 30-year Treasury bond over the 7% mark for the first time in six weeks. The bond’s yield closed at 7.01%, up from 6.96% on Monday.

Rates rose across the board, though the biggest increases were on longer-term bonds--the securities most vulnerable to any hint of higher inflation.

Concerns about inflation were fanned last week when the government reported that consumer and wholesale prices rose much more strongly than expected in April.

Wall Street has generally viewed an annual inflation rate of 3% as tolerable. But because last week’s data pointed to a rate more like 4%, many investors fear the Fed may be forced to tighten credit to slow the already weak economy, in an attempt to choke off inflation again.

In pushing bond yields up over the last week, pessimistic investors could be betting on either of two possibilities, analysts say: that the Fed will raise short-term rates, which could drive long-term yields temporarily higher in a chain reaction, or that the Fed will leave short-term rates alone, allowing inflation to accelerate and thereby pressuring long-term yields further.

“I think (a bias toward Fed tightening) is likely because the inflation picture causes enough of a concern that the Fed cannot simply sit back and dismiss it as an aberration,” said Dan Seto, an economist with Nikko Securities International Co.

Citing unnamed sources, the CNBC-TV network reported Tuesday that at least three Fed governors argued at the meeting in Washington for a slight rise in short-term rates.

However, most analysts continue to believe that the Fed will hold steady for now because of fears that tighter credit could spark another recession.

Any decisions at the Fed meeting won’t be made public for about six weeks.

Even without an immediate Fed decision to officially raise interest rates, some analysts note that the market may continue to take matters into its own hands.

Bryan Scarfone, director of government securities trading at Swiss Bank Corp., said: “I think it’s pretty clear that everybody understands that the Fed is not going to do anything (right away). But the market might tighten for them. We might raise rates ourselves in anticipation of what the Fed might do in three to six months.”

Commodities

Gold prices reached their highest point in more than two years as international tensions and failing confidence in stocks and bonds drove investors toward the shelter of the precious metal.

May gold futures jumped $8 an ounce, to $375.50 an ounce, on New York’s Commodity Exchange, the highest settlement of a near-term contract since Jan. 29, 1991.

Silver also rocketed, with the May contract soaring 20.3 cents an ounce, to $4.61.

Since year’s end, gold has risen 13%, from $332.80.

“What’s happening here is that gold is reacquiring its role as a flight-to-safety vehicle,” said William O’Neill, senior futures strategist with Merrill Lynch Futures.

The trickle of investor demand for precious metals that began in March has risen to a torrent as the Bosnia dilemma, currency instability, global economic weakness and fears of inflation in the United States have undermined confidence in other investments, analysts say.

U.S. inflation fears, tickled by last week’s reports of higher than expected producer and consumer price increases in April, were bolstered by the Commerce Department’s report Tuesday that housing starts were up 6.7% in April, after a slow first quarter.

Elsewhere in commodity markets, light, sweet crude oil for June rose 17 cents, to $19.34 a barrel, on the New York Merc.

In currency trading, the dollar rose against most major currencies, fortified by expectations of rising U.S. interest rates. Higher rates should draw more foreign investors to U.S. bonds and money market instruments, thus raising demand for dollars.

In New York trading, the dollar closed at 1.624 German marks, up from 1.613 marks Monday. The greenback also rose to 111.445 Japanese yen, up from 111.30 yen.

Stocks

Wall Street showed surprising resilience in the face of surging bond yields and gold prices.

The Dow Jones industrial average, off more than 20 points early in trading, closed down just 5.54 points to 3,444.39.

Other indexes also posted only small losses. And the NASDAQ market of smaller stocks actually gained for the day, helped by a major advance in technology stocks.

Still, losers outnumbered winners by about 4 to 3 on the New York Stock Exchange. Volume was 264.3 million shares, up from 227.58 million Monday.

Analysts said that although investors are concerned about higher interest rates, there remains strong underlying demand for equities because of expectations that corporate profits are on an upswing.

Historically during economic recoveries, investors eventually begin to pay more attention to earnings than to interest rates.

The market got a substantial boost Tuesday from electronics giant Hewlett-Packard’s strong second-quarter profit report. The news sent H-P stock up 5 1/8 to 84 3/4 and sparked demand for tech stocks across the board.

Among the market highlights:

* The H-P profit report was notable for the 28% jump in equipment orders the company recorded in the quarter, analysts said. That suggested strong continuing demand for computers and other high-tech equipment.

Other tech stocks advancing sharply included Intel, up 2 1/4 to 101 1/4; Compaq, up 2 1/8 to 55 3/8; IBM, up 1 3/8 to 49; Motorola, up 2 1/8 to 78; Newbridge Networks, up 5 5/8 to 69 7/8, and AST Research, up 5/8 to 15 5/8.

* Cable TV stocks were slightly higher, one day after US West agreed to buy 25% of Time Warner’s cable unit. Time Warner added 3/8 to 35 3/8, Cablevision Systems added 1/8 to 31 1/8 and Multimedia rose 1/2 to 34 1/4.

Elsewhere, AT&T; Corp. zoomed 2 1/8 to 57 1/2. Analysts see AT&T; benefiting from growing links between phone companies and cable TV companies, potentially producing a bonanza in equipment sales for AT&T.;

Cable equipment stocks also rose. General Instrument gained 1 1/2 to 37 and Scientific Atlanta leaped 2 to 30 7/8.

* Gold stocks soared with the metal’s price. American Barrick rose 1 1/2 to 23 3/4, ASA jumped 2 3/8 to 50 1/2, Newmont Gold rocketed 2 3/4 to 44 7/8 and Pegasus Gold, traded on the Amex, rose 2 to 23 7/8.

* On the downside, some industrial stocks reacted badly to the rise in interest rates. Ford Motor tumbled 1 5/8 to 53 1/4, Caterpillar lost 1 to 68 and GE fell 1 3/8 to 92 1/4.

* Dahlberg, the maker of hearing aids, fell 4 3/8, to 19 1/4, after the company said it was involved in a regulatory dispute with the Federal Trade Commission.

Overseas, Tokyo stocks tumbled. The Nikkei stock average fell 336.12 points, or 1.6%, to close at 20,229.39.

In London, the Financial Times 100-share average finished at 2,847.3, down 10.8. Frankfurt’s DAX average gained 0.60, to close at 1,628.48.

Market Roundup, D4