NEW YORK, AUG. 7 -- The Dow industrials slipped 5 points to close at 2710 today as rapidly breaking news from the Middle East and a falling bond market undermined prices.

Bonds, already staggering from fears of inflation and recession due to recently soaring oil prices, slumped anew in response to a weak auction of 3-year notes by the U.S. Treasury.

The Dow rallied 35 points in the first 15 minutes of trading on reports that Iraq might agree to an exodus of the several thousand U.S., British and German nationals from Kuwait. The news was initially seen as suggesting a thaw in the hard-line Iraqi position on its occupation of Kuwait.

But the early rally was largely program-driven. After only 15 minutes, it was spent and the Dow slumped to progressive losses of 16 points by midday, 20 points by early afternoon and 30 points with an hour remaining.

Serving to heighten market jitters were television reports that Saudi Arabia has, for the first time, given permission for the deployment of U.S. military aircraft on Saudi airfields, and that U.S. ground troops are already in Saudi Arabia to provide security for the aircraft. Other developments included a reported redeployment of Iraqi military forces facing Saudi armor on the Kuwait-Saudi border, and an Iraqi proclamation that the emirate of Kuwait has officially been replaced by a "republic."

At the close, the Dow stood at 2710.64, down 5.70 while declines edged advances on the Big Board by a ratio of about 8 to 7, erasing an early 2-to-1 lead by advances. NYSE volume remained heavy at 231 million shares, although contracting from 240 million on Monday. It was the fifth most active trading day of the year.

In international markets, morning news about possible negotiations over the fate of Western nationals in Kuwait helped send Britain's FTSE-100 stock index to a 40-point gain at 2260 as New York opened. But the news came too late to help the shattered Japanese stock market, where the Nikkei-225 plunged another 946.46 points, or 3.3 percent, to close at 27,653.07 in a crucial technical test of its early April lows. {The Nikkei rebounded this morning, gaining 359.08 points, or 1.29 percent, ending the early session at 28,012.15.}

Among Dow components, oil stocks traded actively but dipped fractions as crude-oil futures whipsawed in a wide range of trading, finally settling up 26 cents at $28.31 per barrel.

More prominent losers were United Technologies, down 2 3/4 at 51 7/8, General Motors, down 1 3/8 at 40 1/8 and International Paper, down 1 5/8 at 51 7/8. But some of Monday's big losers among consumer stocks rebounded. Philip Morris, 3M and Procter & Gamble all rallied over a point.

The Dow transports finished down 15.50 at 964.79 as UAL Corp. tumbled another 9 points to close at 101 amid mounting doubts over its planned employee-led buyout.

Among broad stock indexes, the Standard & Poor's 500 was up 0.40 at 334.83, the NYSE Composite rose 0.13 at 183.45, the Value Line was up 0.21 at 260.49, the Amex Market Value fell 0.43 at 339.84 and the Nasdaq Composite was up 2.04 at 402.08.