An element of optimism about the economy pushed stocks higher, although they tumbled from their peaks after nervous investors sold shares that had performed well.
* Long-term government bond yields fell despite doubts about the market's ability to digest the massive supply forthcoming in this week's three-part Treasury auction.
* The dollar soared against the British pound and other leading currencies in a powerful rally that seemed to shake the U.S. currency from its recent doldrums.
Stocks advanced steadily early in the session despite a lack of news. Analysts attributed the rally partly to a re-evaluation of Friday's initially disappointing data on non-farm payrolls.
The Dow Jones industrial average rose 6.09 points to 3,443.28 on Big Board volume of 235.58 million shares, up from Friday's 223.57 million. In the broader market, advancing issues outnumbered declines by about 9 to 7 on the New York Stock Exchange.
"A closer look suggested the economy is starting to re-energize," said Hugh Johnson, chief investment officer at First Albany Corp.
The Labor Department said non-farm payrolls rose by a weaker than expected 119,000 in April. But the report also showed, for example, that manufacturing employment fell, while the average manufacturing work week rose from 40.2 to 40.5 hours, Johnson said.
Adding to the improved sentiment, first-quarter earnings were ahead of market expectations, with company restructurings paying off in profitability, said William Dodge, chief investment strategist at Dean Witter Reynolds Inc.
That contradicts several bleak economic reports released recently.
But the optimism wasn't enough to support the rally, which collapsed in the last 30 minutes of trading, dropping from highs of about 30 points.
Among the market highlights:
* Airline stocks, which rose early in the session, tumbled with the market's late downturn, ending mixed. The shares had fallen last week on news of more price cutting. AMR, the parent of American Airlines, rose 1/4 to 67 7/8; UAL, the parent of United Airlines, fell 1 to 134 1/2, and Delta Air Lines fell 1 1/8 to 56.
* Medical stocks held their gains. The stocks have also fallen recently, this time on uncertainty over President Clinton's health care policy. The sentiment now, however, is that any plan won't be as far-reaching as initially feared, analysts said. US Surgical rose 1 1/8 to 37 1/2, and Merck rose 5/8 to 37 3/4.
* Tobacco issues similarly held their gains. Philip Morris rose 1 3/4 to 52 3/4, and American Brands was up 1/8 at 32 3/8.
* Royal Dutch Petroleum fell 1/8 to 89 5/8 in trading analysts linked to the company's dividend. The full-year dividend will be paid June 4.
* Eastman Kodak rose 1 1/8 to 50 5/8 after two analysts upgraded the stock.
Stocks were sharply higher abroad. London shares ended the day at their best levels. The Financial Times 100-share average rose 36.1 points to close at 2,829.8. Tokyo's 225-share Nikkei average gained 243.35 points to close at 21,054.71, a 14-month high. In Frankfurt, the 30-share DAX average ended down 2.89 points at 1,609.03.
Long-term bond yields retreated in quiet, technically driven trading with roots in Friday's action, when long-term bond yields rose modestly.
The yield on the Treasury's main 30-year bond fell to 6.81% from 6.84%. Its price, which moves in the opposite direction, gained 3/4 point, or $7.50 per $1,000 in face amount on Monday. Shorter-term maturities were little changed.
Helping to spur Friday's retreat was a selloff by dealers trying to make securities more attractively priced ahead of the auctions. But when prices failed to move even lower on Monday, numerous buyers emerged and began to reverse the trend.
Among them were traders who had bet on a decline in the long bond's price, a process called short selling. These traders had borrowed bonds late last week, then sold them anticipating that the price would go down. As the bond price bottomed on Monday, the traders bought bonds at the lower price, paid off the loan and pocketed the difference.
The federal funds rate, the interest on overnight loans between banks, was 2.94%, up from 2.75% late Friday.
The greenback's broad advance, while largely technically driven, gave a newly bullish tone to the dollar after weeks of decline. Strengthening the currency was a selloff in the British pound, which lost nearly 4 cents in value amid growing concerns about the stability of the Tory government. The British pound closed at $1.534 in New York, sharply lower from Friday's $1.572.
The dollar jumped through several more hoops on Monday. It broke 1.592 German marks in early New York trading, proceeded to crack the 1.6-mark level and finally settled at 1.608 German marks. That was sharply higher than late Friday's 1.584 marks. The dollar rally also hurt the Japanese yen. In New York, the dollar traded at 111.78 Japanese yen, up from late Friday's 110.30 yen.
Meanwhile, in commodities trading, energy futures were mixed. Light, sweet crude for June delivery ended unchanged at $20.44 a barrel.
On New York's Commodity Exchange, gold for current delivery fell 10 cents an ounce to settle at $356.60. Silver retreated 0.4 cent to $4.257 an ounce.
Market Roundup, D8