* Blue chip stocks rose to new highs, propelled by Federal Reserve Chairman Alan Greenspan's comments that further interest-rate cuts were possible.
* The Dow Jones industrial average soared 38.69 points to 3,272.81, edging past its prior record, 3,272.14 set Jan. 28.
* Greenspan's refusal to rule out future interest rate cuts set off moderate buying in the government bond market and pushed yields down.
Greenspan said that while the central bank is holding credit steady for now, there may be room for lower rates down the road.
While the Fed chairman's comments before the House Budget Committee in Washington did not differ substantially from his remarks last week, "the general tone indicated more of a willingness to ease," said Robert Walberg, an analyst at MMS International.
That was all the excuse that sidelined buyers needed: On the New York Stock Exchange, winning stocks beat losers by a margin of nearly 2 to 1, and trading volume jumped to 233.68 million shares, up from 185.29 million Monday.
Broad market indexes followed the Dow higher. The Standard & Poor's 500 index gained 4.32 points, or 1.1%, to 413.85; the NASDAQ composite index of smaller stocks leaped 7.57 points, or 1.2%, to 631.00. That marked a new record for the NASDAQ.
The market's rally gathered steam as the day wore on, and buyers snapped a broad cross-section of stocks in both the consumer fields and the industrial arena.
Among the market highlights:
* GM and Ford reported their late January car and truck sales rose by double-digit percentages from the depressed levels of a year earlier, when the Gulf War sliced into the auto makers' business.
Although analysts warned that car and truck sales remained weak, the improvement buoyed the market's spirits. GM rose 1 to 35 and Ford added 5/8 to 33 3/8.
Chrysler, which did not report 10-day sales, gained 1 3/8 to 16 3/8 on rumors that it will report a smaller-than-expected fourth-quarter loss.
* Some auto-parts stocks also rose. Goodyear jumped 2 3/4 to 64 3/4, Echlin added 5/8 to 15 5/8 and Superior Industries climbed 1 3/4 to 39 7/8.
* Among other industrial issues, Dupont jumped 2 to 48, Monsanto gained 2 3/8 to 65 3/8, Georgia-Pacific added 1 3/8 to 66 3/8 and Reynolds Metals advanced 1 5/8 to 55.
* Many consumer growth stocks also rose. Drug giant Merck leaped 4 1/2 to 158 7/8 in anticipation that the FDA would OK the firm's Proscar drug for prostate problems. The news came after the close.
Among other health care issues, Pfizer gained 1 5/8 to 74 1/8, Sunrise Medical added 1 3/4 to 31 1/4 and Biogen jumped 3 1/4 to 33.
Also, California HMO firm Pacificare Health rocketed 6 1/2 to 48 1/2 on a better-than-expected earnings report.
* Banking stocks were strong. BankAmerica gained 2 1/8 to 40 3/4, Wells Fargo leaped 3 to 70 and First Chicago rose 1 1/8 to 28.
* MCI Communications rose 1 5/8 to 33 1/2. The company reported fourth-quarter profit of 52 cents, up from 47 cents a year ago.
* Insurer Kemper Corp. tumbled 4 to 36 3/4. The insurer surprised Wall Street with an announcement of $135 million in pretax reserves against a possible drop in its real estate investment portfolio.
Overseas, the high-priced settlement for Germany's steel industry led to a lower finish for most big stocks on the Frankfurt stock exchange. The 30-share DAX average ended 12.61 points down at the day's low of 1,674.40.
Tokyo stocks reversed a three-day rally and the 225-share Nikkei fell 139.99 points to 21,999.60.
Share prices closed slightly lower in London, with the Financial Times 100-share average down 3.4 points to 2,556.8.
Greenspan's comments dominated the day, and bond traders failed to be riled by news of a slight recovery in auto sales.
Ordinarily, any good economic news would send bond yields up on expectations that credit demand will rise. But Greenspan's comments led many traders to believe that the Fed will lower interest rates further to help the economy.
The price of the Treasury's 30-year bond, which fell 3/4 point in the previous session, jumped 25/32 point, or $7.81 per $1,000. That sent the yield down to 7.75% from 7.82% Monday. Yields on shorter-term bonds also fell.
"I thought there was a significant shift in (Greenspan's) posture that suggests perhaps they are more willing to ease (interest rates) at this point," said Dan Seto, economist for Nikko Securities.
The federal funds rate, the rate on overnight loans between banks, fell to 3.50% from 3.94% Monday.
The dollar fell as signs increased that U.S. interest rates will drop.
Lower rates tend to make the dollar and dollar-denominated investments worth less relative to investments in other currencies.
A further drag on the dollar was the growing strength of the mark. The German currency has been boosted by belief that a wage settlement reached Monday with German steelworkers could be inflationary, preventing the German central bank from lowering its high interest rates.
In New York, the dollar fell to 1.593 German marks, down from 1.600 Monday. Against the Japanese yen, the dollar slipped to 126.15 from 126.20 Monday.
Cattle futures rose to contract highs at the Chicago Mercantile Exchange, reflecting vigorous sales at the nation's feedlots in the past couple of months.
Elsewhere, energy futures were higher at the New York Mercantile Exchange. Light, sweet crude oil for March delivery closed 31 cents higher at $19.27 a barrel.
At the Commodity Exchange in New York, spot gold was 50 cents lower at $356.20 an ounce and March silver was 0.3 cent higher at $4.173 an ounce.
Market Roundup, D8