Blue chip stocks powered through the 3,100 barrier for the first time ever Friday, setting a second-straight record high as year-end buying momentum picked up speed.
Friday's advance capped a weeklong rally that added 167 points to the Dow, the biggest weekly point gain ever posted by the blue chip barometer.
The rally eclipses the 145-point gain posted the week of Jan. 14 during the Gulf War.
The Dow Jones industrial average closed up 18.56 points at 3,101.52. The previous record, set Thursday, was 3,082.96.
Analysts said both institutional and retail buying remained heavy as investors rushed money into stocks before the end of the year.
"Add generally good psychology, an end of tax-loss selling, year-end buying, mark-up buying by institutions and you've got a rally," said Jack Solomon of Bear Stearns.
The rally was not confined to blue chip issues. In the broader market, advancing stocks on the New York Stock Exchange outnumbered decliners by a healthy 1,089 to 587.
Volume on the New York Stock Exchange was about 158.30 million shares, compared to 149.23 million the previous day.
From a technical standpoint, the rally is not a fluke move based on unfounded optimism, analysts said. Technicians point to the fact that the new high in the Dow has been confirmed by all-time closing highs posted on the Standard & Poor's 500 stock index, the NASDAQ composite index and the NYSE composite index.
Analysts said the Federal Reserve's one-point discount rate cut to a 27-year low of 3.5% last Friday is driving money market and CD yields below 4%, forcing fixed-income investors to look to the stock market.
"The money coming out of CDs has to flow somewhere to get those investors the type of income they need," said Ken Lucas, director of research at Johnston, Lemon and Co.
"The stock market has traditionally grown between 9% and 10% a year compounded annually. You can't get that anywhere else," he said.
Among the day's highlights:
* Stocks of home-building companies were swept up in the rally, with Toll Brothers Inc. jumping 1 1/8 to 11 1/4, UDC-Universal Development LP climbing 3/4 to 9 3/8 and Ryland Group rising 1/2 to 22 1/2. Prudential Securities raised its ratings on all four stocks.
* Topping the most-actives was RJR Nabisco Holdings, which gained 1/8 to 10 3/4. Consumer products manufacturer Corning Inc., which PaineWebber added to its focus list of stocks, advanced 1 1/2 to 80 3/4.
* First Financial Management fell 4 1/2 to 38 7/8 in heavy trading after the company revised earnings downward to reflect accounting errors.
* Many stocks of retail companies also fell on persistent concern over disappointing holiday sales. Dayton Hudson slid 5/8 to 59 3/8. Tiffany & Co. dropped 1 1/2 to 43. The Limited lost 5/8 to 28.
In overseas trading, London stocks extended a Christmas week rally, with the Financial Times-Stock Exchange index of 100 leading shares up 34.3 points from the previous trading day on Tuesday, to 2,418.7, a 60.6-point advance for the week.
In Frankfurt, the 30-share DAX index ended at 1,563.59, up 23.97 points from Monday, when the market was last open, and 20.4 points above last Friday's close.
In Tokyo, stocks surrendered early gains to close weaker in thin, volatile trading. The 225-share Nikkei average was down 117.75 points to 22,437.32, a 660.2-point gain over the week.
Treasury bond prices closed mixed in quiet trading after making up some of the ground lost in early morning overseas trading.
The price of the Treasury's bellwether 30-year bond was down 3/32 point, or about 94 cents per $1,000 in face amount, by closing. Its yield, which moves in the opposite direction from price, rose to 7.51% from 7.50% late Thursday.
"The market started out on a worse note coming in on overseas trading and slowly did better," said Steven R. Ricchiuto, chief economist at Barclays de Zoete Wedd Securities Inc.
He said the market was boosted by a decline in an index of commodity futures prices. The lower index indicated expectations of diminished inflation. Inflation is a major concern of bond investors, since it decreases the value of the fixed-return securities.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3.0%, down from 4.375% late Thursday.
The dollar weakened further against the yen but gained against key European currencies, helped somewhat by rising political tensions in the former Soviet republics.
Foreign exchange dealers said they didn't read too much significance into the dollar's behavior, since the level of trading was extremely light because of the year-end holiday season. European and Hong Kong markets reopened Friday after a two-day Christmas break.
The most dramatic action came in dollar-yen trading, which over the last few days has kept the dollar at its weakest levels against the Japanese currency since the fall of 1990.
Investors were buying yen ahead of President Bush's visit to Tokyo next month, on the assumption that the Japanese will try to boost the value of the currency to ease the enormous trade surplus with the United States, forestalling any U.S. sanctions.
In New York, the dollar fetched 125.93 yen, versus 126.40 Thursday. The pound fetched $1.8740, weaker than its $1.8840 value Thursday.
Other late dollar rates in New York, compared to late Thursday: $1.5188 marks, up from 1.5075; 1.3510 Swiss francs, up from 1.3435; 1.1606 Canadian dollars, up from 1.1605; 5.1905 French francs, up from 5.1580, and 1,151.75 Italian lire, up from 1,143.50.
Oil futures prices rose in thin trading on the New York Mercantile Exchange, bucking the recent trend after an industry report showed an unexpected drop in U.S. crude oil stocks.
On other commodity markets, precious metals retreated; grains and soybeans were mostly lower, and livestock and meat futures were mixed.
Light, sweet crude oil for delivery in February rose 26 cents to $18.76 a barrel; January wholesale home heating oil rose 0.06 cent to 50.38 cents a gallon; January wholesale unleaded gasoline climbed 0.43 cent to 53.42 cents a gallon.
Gold and silver futures retreated on New York's Commodity Exchange, extending Thursday's losses in light trading. Platinum steadied on the New York Mercantile Exchange after flopping to a six-year low Thursday on weak industrial and investment demand.
Gold for December delivery fell 90 cents to $353.60 an ounce; December silver dropped 4.4 cents to $3.856 an ounce. January platinum rose 50 cents to $333.60 an ounce.