Market Overview A broad rally in smaller stocks drove the NASDAQ market to new highs, pulling blue-chip issues up as well. The Dow closed just under its all-time high.
Interest rates were mixed, with 30-year Treasury bond yields easing to just above their record low set last week.
Oil prices plunged on new worries about a supply glut. Meanwhile, the dollar advanced, and gold prices rebounded.
Demand for smaller stocks was robust, reflecting investors' hunger for issues with good potential growth prospects in a slow economy, analysts said.
The NASDAQ composite index of 4,000 mostly smaller stocks jumped 5.46 points to a record 742.84. The Russell 2000 index of smaller issues also hit a record, adding 1.37 points to 246.19.
Winners swamped losers 14 to 9 on NASDAQ, versus 12 to 8 on the New York Stock Exchange.
The rally in small stocks seemed to help lift blue chips late in the day. The Dow industrial average closed up 7.26 points at 3,651.25, just under its all-time high of 3,652.09 set Aug. 25.
The NASDAQ market has outpaced blue chips since mid-July, in part responding to continuing weak signals from the economy, analysts say.
Given the current environment, "It won't be easy to make money in the stocks of companies that are sensitive to swings in the economy--the large, highly capitalized companies trading on the NYSE," argues Hugh Johnson, investment strategist at First Albany Corp.
Instead, he says investors are looking to the "smaller niche companies," many of which have already shown this year that they can make decent profits in a sluggish economy.
But some traders also caution that an overheated NASDAQ market would be a classic sign of a near-term market peak. They also note that an expected wave of new stock offerings in September could deplete investors' available cash, at least temporarily.
Among the market highlights:
* A rally in technology issues helped lift NASDAQ. Microsoft surged 2 1/2 to 75 1/8 after some analysts made positive comments about the company. Goldman Sachs analyst Rick Sherlund said Microsoft appears to be planning an early release of its new Windows 4.0 software program, which could be a sales blockbuster.
Among other tech issues, Lotus Development rose 1 3/4 to 35 1/4, Compaq gained 1 1/2 to 54 1/4, Oracle gained 1 1/8 to 51 1/2 and Autodesk added 1 to 50 1/2.
IBM also continued its recent rebound, gaining 1 1/8 to 45 3/4.
* Among telecommunications issues, Nextel Communications (formerly Fleet Call) surged 3 3/8 to 38 3/4. The firm said it activated a digital mobile network in Southern California, the nation's first.
Other communications stocks rising included Nynex, up 1 1/2 to 92 3/4; Bell Atlantic, up 7/8 to 64 1/8; MCI, up 5/8 to 28; and Ameritech, up 1 to 87 1/8.
* Cable TV equipment suppliers also rallied again. Scientific Atlanta jumped 1 1/8 to 37 3/8 and General Instrument leaped 1 7/8 to 52 3/8.
* Brokerage stocks jumped to new highs as the bull market continued. Morgan Stanley shot up 2 3/4 to 82 7/8, Salomon added 7/8 to 50 3/8 and Merrill Lynch rose 1 to 97.
* On the NASDAQ market, some of the biggest gainers included Southland racetrack operator Hollywood Park, up 3 3/4 to 29; catalogue retailer Spiegel, up 2 3/4 to 29; and steakhouse chain Outback Steak, up 2 to 32 1/4.
* On the downside, Showboat sank 3 to 17. The casino operator said it expects third-quarter earnings to slide to between 50 and 60 cents a share because of a lucky streak by gamblers and lower-than-expected growth at its Atlantic City, N.J. casino.
Overseas, stocks were mixed. Frankfurt's DAX index rose 23 points to 1,944.89 on new hopes for German interest rate cuts. But London's FTSE-100 index eased 0.6 point to 3,100.
In Tokyo, the Nikkei average closed above 21,000 for the first time since June 3, adding 113.91 points to 21,026.60.
The bond market was uneven, as shorter-term rates inched up while long-term yields eased.
A better-than-expected report on second-quarter gross domestic product caused some selling early on, as some traders worried that the economy might be picking up steam.
But late in the day a report from research firm Johnson Redbook report showed retail sales falling slightly in August from July. That encouraged bond buyers, who are content with the economy's weak pace because it keeps pressure off interest rates.
By the close, the yield on the Treasury's benchmark 30-year bond was 6.10%, down from 6.11% on Monday. The latest yield is just above the historic low of 6.08% set last Thursday.
The most interesting rumor in the bond market Tuesday: that Coca-Cola was planning to issue a bond maturing in 150 years. Coke sold 100-year bonds not long ago, a development that showed how eager investors have become to lock in yields as interest rates drop.
But Coke said the latest rumor was false. "We are not planning any debt issues in the near future," a spokeswoman said.
Crude oil prices plunged amid news that crude production in Nigeria hasn't been disrupted by the country's three-day-old pro-democracy strike.
October crude futures lost 44 cents to $18.29 a barrel on the New York Merc.
Prices had risen recently on expectations that the Nigerian situation would cause a drop in world oil supplies.
Traders said the market now will focus on negotiations that could allow Iraq to begin exporting oil again.
Elsewhere, the dollar appeared to get a boost from the gross domestic product report. It closed in New York at 104.74 Japanese yen and 1.677 German marks, up from Monday's 103.83 yen and 1.672 marks.
Gold prices gained. On the New York Comex, gold for current delivery closed at $373.00 an ounce, up $2.40 from Monday. Silver was at $4.84, up 0.6 cent.
Market Roundup, D8