FINANCIAL MARKET : Dow Inches Up to a New Record : Market Overview

* The Dow Jones industrial average and several other key market indexes again set new closing highs, helped by momentum from the previous day’s sharp advance.

* Bond yields rose modestly, at least temporarily halting the rally that has been the talk of Wall Street this year.

Stocks

Stocks seesawed throughout much of the day, following Monday’s surprise 64-point Dow rally.

The Dow finished the day up 2.70 points at 3,472.12, eclipsing Monday’s record of 3,469.42.

In the broader market, advancing issues outnumbered declines by about 9 to 7 on the New York Stock Exchange. Volume stepped up to 290.67 million shares from Monday’s 277.88 million.

“The selling was contained,” said Alfred Goldman, analyst at A. G. Edwards & Sons in St. Louis. “When there were modest price pullbacks, buyers showed up. We still have a momentum-driven, powerhouse market.”

Edward Nicoski, chief market strategist for Piper Jaffray Inc. in Minneapolis, described the session as a “consolidation day.”

With bond yields at their lowest levels in decades, “there’s lots of money out there looking for a home,” said Don Hays, investment strategist at Wheat First-Butcher & Singer. “And there’s nowhere else to go but stocks.”

Analysts noted that Monday’s rally was fueled by signs of an improving economy. Last Friday, the government reported strong job growth in February.

In addition, Congress and President Clinton are talking nonstop about cutting the federal budget deficit--which, if they’re serious, would theoretically free up more money for investment in the economy in the ‘90s.

Among non-blue chip stock indexes, the American Stock Exchange market value index rose 2.29 points to a record 419.02, surpassing the previous record of 418.99 set Feb. 12, 1992.

Among the market highlights:

* Industrial stocks continued in demand, on new hopes for the economy. Reynolds Metals gained 1 1/4 to 53 7/8, Cummins Engine leaped 1 3/8 to 92 3/4, Inland Steel added 7/8 to 22 3/4, and nickel miner Inco rose 1/2 to 23 7/8.

* American Express rose 1 1/4 to 28 after confirming that it is in talks to sell its Shearson Lehman Bros. retail brokerage to Primerica Corp. Primerica soared 4 3/4 to 44 3/4.

The news buoyed other brokerages as well. Charles Schwab gained 3/4 to 36, and PaineWebber added 1 to 26 1/4.

* Wells Fargo jumped 3 1/8 to 108 5/8, leading many other banking stocks higher. President Clinton is expected to unveil new proposals to spur bank lending and allow banks more leeway in working through bad real estate loans.

Also, BankAmerica gained 7/8 to 53 after Prudential Securities upgraded the stock from sell to hold, in anticipation of the Clinton plan.

* Payless Cashways, the building materials retailer, was the most active NYSE share at 14 1/2. The stock started trading Tuesday after the company went public in a 28-million-share initial offering priced a day earlier at 12 3/4 each.

* Humana, newly separated from its hospital business, rose 5/8 to 7 1/2 after the managed health care company forecast higher second-quarter profit.

* On the downside, Imcera Group, the health care products company, fell 4 3/8 to 26 1/8 after forecasting lower third-quarter profit.

Also, toy maker Fisher-Price fell 3 to 23 3/4 after an analyst cut earnings estimates on the company.

* Among Southland issues, food distributor Rykoff-Sexton plunged 1 7/8 to 14 1/2. The company reported a large quarterly loss and eliminated its dividend. The firm has suffered over the last year from the weak California economy and tough competition elsewhere.

Overseas, Frankfurt stocks leaped 1.1% to their highest close in almost eight months. The DAX average ended 18.31 points up to 1,713.13, its best finish since July 16.

Stocks ended higher in Tokyo, with the Nikkei average climbing 161.83 points to 17,848.30. It had crossed 18,000 early in the session.

But shares closed lower in London. The Financial Times 100-share average slipped 7.4 points to 2,949.9.

Credit

Bond yields, which have been hitting the lowest levels in a generation, turned higher Tuesday.

The yield on the Treasury’s 30-year bond rose to 6.74% from 6.72% on Monday. Yields on bonds of shorter maturities rose more.

Investors were frustrated by the strong, then not so strong deficit-cutting noises emanating from Washington, said Anthony Chan, senior economist with Barclays de Zoete Wedd Government Securities Inc.

In addition, bond investors have lingering worries from Friday’s strong employment report, which could mean the economy is stronger than believed.

Analysts said a key milestone for the bond market will come this Friday, when the government releases its wholesale inflation index for February.

The federal funds rate, the interest on overnight loans between banks, was 2.938%, down from 3.063%.

Other Markets

The dollar advanced in Europe and continued its steady climb in domestic trading.

Dealers said the currency was supported by several factors, including the worsening economic climate in Germany and continued political instability in Japan.

“There’s a definite bias toward buying dollars,” said James Maccario, chief dealer at the Bank of Boston. “A lot of fundamentals are pointing toward a stronger dollar--or maybe more to a weaker mark.”

Speculation remains rampant that Germany will notch interest rates lower in the coming weeks to boost the economy. The country’s central bank eased rates slightly last week.

Lower rates abroad make U.S. yields more attractive in comparison, thereby increasing investors’ need for dollars.

The dollar closed in New York at 1.667 German marks and 117.75 Japanese yen, up from 1.664 marks and 116.81 yen Monday.

Meanwhile, natural gas futures prices rose sharply in the commodities markets on reports of relatively low U.S. stocks and the temporary shutdown of a Canadian supply pipeline as frigid weather headed for the populous Midwest.

Natural gas for April delivery surged 9.7 cents to $1.921 per 1,000 cubic feet on the New York Mercantile Exchange.

Elsewhere, April deliveries of light, sweet crude oil slipped 3 cents to $20.68 a barrel.

On New York’s Commodity Exchange, April gold fell 50 cents to $326.60 an ounce, and March silver rose 2.1 cents to $3.56.

Market Roundup, D6