(MONEY Magazine) – No matter what eventually happens in the Arabian sands, the markets are convinced that the nearly 80% rise in oil prices during August means lower corporate profits, slower growth and higher inflation in the U.S. So after tumbling sharply when Iraq rolled over Kuwait, stocks and bonds continued to drop. Only one industry group, oil and gas drilling, managed a small gain. The rest declined, with the biggest casualties among oil consumers like airlines and industries that are sensitive to changes in interest rates such as consumer finance. The large-capitalization Dow Jones industrials, which post dividend yields that an average 4.2%, held up better than did small growth stocks, which often pay no dividends at all. In the bond market, investors shunned 30-year Treasury bonds yielding 9%, which are particularly vulnerable to inflation, and rushed into short-term T- bills yielding 7.7%. -- J.E.G.

CHART: NOT AVAILABLE CREDIT: Sources: Salomon Bros., the Bond Buyer CAPTION: Economic data Stock market data Bond yields