Dow Up 63.86; NASDAQ Hits a Record High : Wall Street: Recent reports that small stocks are outperforming blue chips helped fuel the rally.

Computer-driven trading touched off a rally Tuesday that sent the Dow Jones industrial average up 63.86 points, or 2.2%, to close at 2,945.05. Meanwhile, a spate of favorable publicity about over-the-counter stocks helped loft the NASDAQ composite index to a record high.

The rally, which was not linked to any major news or economic developments, was broad based. The Standard & Poor’s composite index of 500 stocks also set a record, as did the New York Stock Exchange composite index.

Traders at major brokerages said the rise was helped along by a strong performance by the bond market and followed a rise in stock prices that began overnight in overseas markets. Tuesday’s rally more than erased the Dow’s 32.67-point fall Monday.

It was the biggest single-day rally by the Dow since it rose 71.54 points Feb. 11. Tuesday’s rise fueled speculation that the market may again be poised for an assault on the 3,000 mark--a level that the Dow briefly crossed during intraday trading in March but has never surpassed at the close.

Robert P. O’Toole, head of domestic over-the-counter trading at Shearson Lehman Bros., said many big money managers apparently reacted to what they viewed as a lack of real selling pressure Monday. Although both the Dow and over-the-counter indexes fell Monday, volume was light.

“Everybody started saying, ‘What do we do now?’ ” O’Toole said. “Institutions that had been sitting on the sidelines just dove in.”

The buying was particularly heavy in the OTC arena, home of most small stocks. “It was almost like a buying panic at the close,” O’Toole said.

Despite the market’s big rise, Big Board volume Tuesday was a moderate 189.5 million shares, up from 144 million Monday. Gaining stocks totaled 1,193, while 447 fell.

Articles in major business publications in recent days noting that small stocks were outperforming blue chips helped propel OTC issues. The NASDAQ index rose 10.34 points, or 2.2%, to 491.20, finally smashing the previous all-time high of 485.73 set in October, 1989.

Since last October, the NASDAQ index has risen 51%, compared to a rise of 25% in the Dow.

Among the market highlights:

* The Dow was propelled by GE, up 2 3/8 to 72 1/8; Coca-Cola, up 1 3/4 to 56 1/2; Merck, up 3 1/4 to 108 3/4, and Philip Morris, up 2 7/8 to 69 1/2. Many investors are eager to buy such names on the belief that, even if the recession isn’t yet over, these firms will come through OK.

But in a sign that much of industrial America is still mired in recession, the only stock in the Dow 30 to fall was Bethlehem Steel, off 3/8 to 12 7/8 after forecasting a first-quarter operating loss.

* In the NASDAQ market, many small tech stocks continued to assert the leadership that has driven the NASDAQ index since last fall. Among Southland issues, FileNet jumped 2 3/4 to 15 1/2 after projecting first-quarter earnings up 25%. Other gainers included AST Research, up 1 1/2 to 31 1/4; Teradata, up 3/4 to 18 3/4, and Micropolis, up 1/2 to 12 1/2.

* El Segundo-based International Rectifier leaped 2 1/2 to 22 after winning a court injunction halting rival Harris Corp. from making power transistors using IR patents.

* Asuza-based Optical Radiation soared 2 1/2 to 28 1/4. It received Food and Drug Administration pre-market approval for its Orcolon gel, used in eye surgery.

Overseas, London’s Financial Times-Stock Exchange index led other European markets higher, gaining 31.8 points to 2,488.3. German shares also ended higher, with the DAX index up 15.82 points to 1,538.62. Tokyo’s 225-share Nikkei index jumped 244.60 points to 26,252.00.

Credit

Bond prices rose, strengthened largely by growing anticipation that the Federal Reserve will have to cut interest rates further to energize the anemic economy.

The Treasury’s 30-year issue rose 13/32 point, or about $4.19 per $1,000 face amount. Its yield fell to 8.22% from 8.25% on Monday.

The main rallying point in the bond market was a hunch that the government’s report on March unemployment due Friday will show perhaps as many as 200,000 Americans were thrown out of work in the month, raising the jobless rate to 6.7% from 6.5% in February.

The federal funds rate, the interest on overnight loans between banks, fell to 6.25% from 6.50%.

Currency

The dollar dropped for the second straight session, victim of the speculation that U.S. interest rates may continue to fall if the March unemployment figures show continued weakness in the economy.

The dollar slumped to 137.85 Japanese yen from Monday’s 139.35. It was at 1.670 German marks, down from 1.672.

Commodities

Copper futures prices jumped to a three-week high on New York’s Commodity Exchange as traders bet that an economic recovery will prompt stronger demand.

Copper settled 2.05 to 3.4 cents higher, with the contract for delivery in April at $1.093 a pound, highest since March 13.

Gold finished $1.80 to $1.90 lower, with April at $358.50 an ounce. Silver was 4.9 to 5.3 cents higher, with April at $3.99 an ounce .

Market Roundup, D6