FINANCIAL MARKETS : Technology Stocks Pace Nasdaq Gain; Bonds Steady

Market Overview * Buoyed by further gains in technology stocks, the Nasdaq composite index posted its fourth consecutive record close Tuesday. But blue-chip shares eased.

Early today in Tokyo, the Nikkei stock index fell below 20,000 for the first time since July 29, on growing pessimism about the Japanese economy.

* Interest rates were mixed, as an early rally faded late in the day because of new tensions in Russia.

* Copper prices fell to six-year lows, while oil continued to gain.

Stocks

Another rush of buyers into key technology issues helped drive the Nasdaq composite index of mostly smaller stocks up 3.71 points to a record 763.66, continuing that market’s hot streak.

But the Dow industrials lagged, off 1.68 points to 3,566.02.

Analysts said investors’ demand for technology stocks in particular and small-company issues in general has become a race with the calendar: With the third quarter ending Thursday, some portfolio managers are eager to add the hottest stocks to their portfolios so clients see those names on their quarterly statements.

In the broad market, winners topped losers 12 to 10 on the Nasdaq and 11 to 9 on the New York Stock Exchange. Big Board volume was moderate at 243 million shares.

Analysts noted that the wave of buying in smaller stocks also reflects Wall Street’s expectation that smaller firms’ third-quarter earnings will look better, on balance, than those of bigger firms.

“Investors are worried about third-quarter earnings, and they think growth can be found in small companies,” said David Shulman, market strategist at Salomon Bros.

Young technology firms, for example, are expected to benefit from the ongoing surge of investment in capital equipment to improve companies’ productivity.

In Tokyo, meanwhile, investors appear to be worried that even the least exciting forecasts for the Japanese economy in the fourth quarter will be too optimistic.

After rising 78.61 points on Tuesday, the Nikkei stock index slumped 189.22 points to 19,983.50 by midday today--the first decline below 20,000 since July 29.

Traders said the market was dragged down by futures-linked selling. But many also said the market was fundamentally weak, as a string of government and corporate reports suggested that Japan’s economy isn’t recovering and may be getting worse.

Bloomberg Business News reported that Japan’s Economic Planning Agency said its leading index of forward-looking economic statistics stood at 40 in July. A number below 50 suggests declining economic activity. July marks the third straight month the index has come in below 50.

Among U.S. market highlights:

* Tech stocks leading the market for a second day included Intel, up 2 3/8 to a record 72 3/4; Microsoft, up 1 3/4 to 84; Novell, up 1 1/8 to 18 5/8; Motorola, up 2 to 104 1/2; Cisco Systems, up 1 1/8 to 52, and Cypress Semiconductor, up 2 1/8 to 15 1/8.

* Among other issues powering Nasdaq, software firm Wall Data leaped 3 1/4 to 34 3/4, distribution systems maker Pxyis surged 3 1/4 to 56 3/4 and machine-vision firm Cognex jumped 3 3/4 to 34 3/4.

* Financial stocks were generally strong, reflecting renewed hopes for stable or lower interest rates. Citicorp gained 7/8 to 37 7/8, Wells Fargo added 1 3/8 to 127 3/8, First Interstate rose 1 1/8 to 66 and Merrill Lynch jumped 1 5/8 to 101 1/4 .

* Among new stock issues, book retailer Barnes & Noble made a big splash: Its shares, priced at 20 in the initial offering late Monday, rocketed to close at 29 3/8 on the NYSE. The stock’s ticker symbol is BKS.

* On the downside, drug stocks weakened again. Warner-Lambert fell 1 1/4 to 66 1/2 after saying it expects third-quarter earnings to be down from a year ago. It said drug sales in America and Europe have been “adversely affected by health reform measures.”

* GM E shares, representing GM’s Electronic Data Systems unit, dropped 1 7/8 to 30 1/8. The firm’s chief financial officer told analysts that the company doesn’t expect to return to double-digit revenue growth until the fourth quarter.

Overseas, London’s FTSE-100 index added 10.6 points to 3,036.9. In Frankfurt, the DAX-30 index inched up 1.43 points to 1,913.61.

Credit

Interest rates fell early Tuesday, continuing Monday’s rally on news that the Federal Reserve Board had given up its summer “bias” toward higher rates.

But by day’s end, bond yields were mixed, hurt in part by late reports about new political tensions in Russia.

The 30-year Treasury yield finished at 5.94%, flat with Monday.

Some bond traders may have been somewhat disappointed with economic reports that hinted at an improving economy. The Conference Board reported its consumer confidence index was 62.6 this month, up three points from August but still at a depressed level from earlier in the year.

Still, analysts noted that at best the economy is lukewarm, which isn’t a prescription for higher interest rates.

Other Markets

Copper futures prices tumbled to the lowest level in nearly six years as traders confronted weak demand that had been largely ignored during a recent supply squeeze.

Copper for October delivery sank 2.3 cents on New York’s Comex to 75.60 cents a pound, the lowest since Oct. 20, 1987.

In other markets:

* Gold futures for near-term delivery climbed $1.70 to $355.40 an ounce on the Comex; silver gained 3 cents to $4.08.

* Oil futures continued to creep up as OPEC worked toward new production caps for member countries. November crude futures rose 23 cents to $17.96 a barrel on the New York Merc.

* The dollar sank, reflecting disappointment that no new initiatives on cutting the U.S. trade deficit emerged from a meeting Monday between President Clinton and Japanese Prime Minister Morihiro Hosokawa.

In New York, the dollar finished at 104.90 yen, down from 106.05 on Monday. It also eased to 1.623 German marks, down from 1.629.

Market Roundup, D8