Dow Zooms 45.12 as Investors Gain Faith : Stocks: NASDAQ, NYSE and S&P; 500 indexes all hit record closes amid a stream of healthy reports on the economy.

Stock prices roared ahead in heavy trading Wednesday as Wall Street responded to fresh signs that the economy is finally on a roll.

The Dow Jones industrials leaped 45.12 points, or 1.4%, to 3,373.79, posting their biggest one-day advance since the 70.52-point rise of last Sept. 14.

Volume on the New York Stock Exchange was the eighth-heaviest ever at 345.41 million shares, up from Tuesday’s 271.56 million.

Traders said there was no single catalyst for the advance, but that investors appeared to be enthused by the continuing stream of healthy reports on the economy.

The government had reported Tuesday that the index of leading economic indicators jumped 1.9% in December, the biggest monthly gain in almost 10 years.

Perhaps even more important for stocks, analysts say, is that interest rates have continued to edge lower recently despite the economy’s new vigor. Normally, rates would be expected to inch up on expectations of faster growth and greater demand for money.

But because inflation has been subdued--and because President Clinton has pledged to slash federal deficit borrowing significantly over the next few years--Wall Street appears to believe that interest rates can remain in check even as the economy gains steam.

Also, new interest rate cuts overseas--last week in Britain, and today in Japan--indirectly take additional pressure off U.S. rates.

The yield on 30-year Treasury bonds, the bellwether long-term interest rate, fell from 7.24% on Tuesday to 7.21% Wednesday, and shorter-term yields also eased. The 30-year T-bond yield now is hovering just above the 7.11% low of the last decade, reached in 1986.

“We’ve had these stronger economic reports, but bonds haven’t sold off,” said Dale Tills, trader at Charles Schwab & Co. in San Francisco. “That’s bringing money just pouring in” to stocks and bonds alike, he said, as investors bet that both markets can rally further.

Indeed, analysts say one key reason for Wall Street’s increasingly bullish tone is that individual investors are flooding stock and bond mutual funds with fresh cash, in search of better returns.

Though the shift of cash from money market funds and bank savings accounts into stocks and bonds has been ongoing for the last two years, it has accelerated in recent months as investors apparently see no prospect for a substantial rise in short-term interest rates anytime soon.

Many mutual fund companies reported this week that their cash inflows set records in January.

Analysts concede, however, that the level of speculation in stocks is flashing a danger signal that the market may be close to overheating, at least temporarily.

Wednesday, stocks of two young tech firms made their debut on the NASDAQ market, and both rocketed once trading began as investors battled to get a piece of the action.

Powersoft Corp., a Burlington, Mass.-based maker of software used in computer networking, went public at $20 a share and soared to close at $38.25.

Also, Cambridge, Mass.-based MathSoft Corp., whose software performs mathematical calculations for engineers, went public at $13 and zoomed to $22 at the close.

Shelby Davis, manager of the New York Venture stock mutual fund, agrees that “smaller stocks may be getting overheated.” But he also noted that the NASDAQ market has calmed down in recent days, and that blue chips have begun to lead the market again, for the first time since last summer.

Wednesday, the NASDAQ composite index gained just 0.5% versus the Dow’s 1.4% rise. That kind of “rotation of leadership” is a healthy sign for stocks, Davis said, and usually means the market still is in a prolonged up cycle.

“I think we’re in a financial ‘sweet spot’ right now,” Davis said. “We’re at the bottom of the corporate profit cycle, looking up” to better earnings as the economy improves. Also, “interest rates are looking friendly, and the Federal Reserve is looking friendly.”

Analysts noted too that many foreign markets have begun to rally as interest rates overseas have fallen. In London on Wednesday, the Financial Times 100 index jumped 39.40 points to end at a record 2,873.80.

In Frankfurt, stocks hit a six-month high as the DAX index rose to 1,601.53, up 18.44 points. In Tokyo, the Nikkei average inched up 35.72 points to 17,222.03.

But in Mexico City, stocks suffered another decline as interest rates there edged up. The Bolsa index lost 16.59 points to 1,607.56.

Among U.S. market highlights:

* Gainers outpaced losers 14 to 6 on the NYSE and 12 to 8 on the NASDAQ. The NASDAQ composite, NYSE composite and Standard & Poor’s 500 indexes all set record highs.

* Industrial stocks that should benefit most from a stronger economy led the market. Allied-Signal jumped 2 7/8 to 61 7/8, GM rose 1 3/4 to 39 1/8, International Paper leaped 2 1/8 to 65 3/8, USX-U.S. Steel soared 1 3/8 to 39 5/8, PPG Industries added 1 5/8 to 64 1/4, and Cummins Engine zoomed 4 1/8 to 80 1/8.

* Rail and trucking issues also soared. CSX Corp. rose 1 3/8 to 77 3/4, Norfolk Southern was up 1 1/8 to 64 3/4, and Conrail rose 1 3/8 to 56 1/4.

* Retailers were broadly higher on expectations that new economic vigor will encourage greater consumer spending. J. C. Penney rocketed 3 1/4 to 77, May Department Stores jumped 3 1/4 to 76 3/4, and Vons added 1 1/2 to 24 3/4.

* Insurance, banking and brokerage stocks continued to advance. They would benefit from a healthier economy, especially if interest rates stay low. American International Group soared 3 3/4 to 125 7/8, Unitrin jumped 1 3/4 to 43, Salomon gained 3 to 40, and First Chicago was up 1 3/4 to 44 3/8.

* Many technology stocks were notably weak on an otherwise big day, a sign that money is moving out of those stocks after four strong months. Intel lost 2 3/8 to 108 7/8, Adobe Systems fell 2 1/8 to 43 1/4, Dell Computer dropped 3 1/8 to 41 7/8, and Compaq slid 1 7/8 to 49 3/4.

Other Markets

The dollar was mostly higher again, bolstered by the improving American economy and renewed European currency turmoil.

The dollar surged briefly past the 1.65-German mark level, its highest rate since last April. The U.S. currency closed in New York at 1.645 marks, up from 1.642 marks on Tuesday.

The dollar settled at 124.38 Japanese yen versus 124.65.

In futures, a record-smashing rally in lumber raged as prices leaped the permitted daily limit for the eighth straight day on the Chicago Merc. Spruce two-by-fours for March delivery rose $5 to $318.50 per 1,000 board feet.

Elsewhere, light, sweet crude oil for March fell 7 cents to $19.93 a barrel on the New York Merc.

On New York’s Comex, gold fell $1.10 to $329.30 an ounce and silver dropped 1 cent to $3.66.

Market Roundup, D6