Early Rally Falters, but Dow Up 9.50 : Stocks: A selloff in semiconductor shares limits the gains prompted by a surge in overseas markets.

From Times Staff and Wire Reports

Market Overview

* European markets surged on relief over Russia's return to calm, but U.S. stocks ended mixed after a sharp decline in computer chip stocks deflated an early rally.

* Short-term U.S. interest rates edged up, hurt by worries about upcoming Treasury sales. Gold prices were little changed.

Stocks

Wall Street got off to a good start Tuesday, helped by powerful rallies in European markets as the political crisis in Russia abated. German stocks hit an all-time high. And early today in Hong Kong, stocks also jumped to a new high.

But U.S. investors' enthusiasm cooled after Advanced Micro Devices, a leading semiconductor maker, reported third-quarter earnings that were below expectations. AMD shares plunged 4 3/4 to 22, sparking a selloff in technology stocks in general.

The Dow industrials, up 16 points at noon, trended lower from there and finished with a 9.50-point gain to 3,587.26.

In the broad market, winners and losers were about evenly matched on the New York Stock Exchange and on Nasdaq, in heavy trading.

But the Nasdaq composite index, heavily weighted with technology stocks, suffered a 2.57-point loss to 762.27, one day after reaching an all-time high.

Analysts said investors' vicious reaction to AMD's quarterly report showed the market's sensitivity to earnings--and highlighted the nervous atmosphere awaiting third-quarter results.

With so many stocks at record highs, "at the first sign of trouble everyone wants to jump ship," said Guy Truicko, equity portfolio manager at Unity Management.

Many overseas markets, by contrast, appear far less hesitant, analysts note.

European markets, for example, are focused on the likelihood of continuing interest rate declines.

In Frankfurt, Russia's new calm, combined with a plunge in German bond yields, sent the DAX stock index up 49.01 points, or 2.6%, to a record 1,972.73. That surpassed the old peak set in March, 1990, just before German unification.

In Paris, the CAC-40 index leaped 30.11 points to 2,158.77. In London, the FTSE-100 index jumped 17.5 points to 3,085.2.

Tokyo's Nikkei index also eked out a gain, adding 57.50 points to 20,321.93.

Meanwhile, in Hong Kong early today, the Hang Seng index opened today with a burst of buying that pushed it up 135 points, surpassing the 8,000 level for the first time.

"It's continued euphoria from Mr. Biggs," said Iain Pickett, institutional broker at DBS Securities, referring to brokerage Morgan Stanley's international equity strategist, Barton Biggs. Last week, Biggs recommended that investors increase the number of Hong Kong and China-based stocks in their international portfolios.

Among U.S. market highlights:

* AMD's profit report sent semiconductor stocks reeling. Texas Instruments tumbled 4 7/8 to 70 1/2, Intel dropped 2 3/4 to 70, Motorola lost 2 1/8 to 98 3/4 and Micron Technology tumbled 4 3/4 to 49 7/8.

AMD said third-quarter earnings were 61 cents a share, up from 51 cents a year earlier. But Wall Street had expected 69 cents. Moreover, AMD's forecast for near-term sales wasn't encouraging, analysts said. "They were downbeat," said Eugene Glazer, analyst at Dean Witter.

However, Merrill Lynch analyst Thomas Kurlak said he sees no signs of overall weakness in the chip industry, despite the downbeat report from Advanced Micro Devices. "The AMD report is really unique to AMD," Kurlak said. "Demand is very good throughout the industry."

* Other tech stocks losing included Cabletron Systems, down 4 3/4 to 97 1/2; Sybase, down 3 to 62 1/2; Qualcomm, off 3 3/4 to 79, and LAM Research, down 3 to 29 3/4.

* Another downbeat profit report came from Verifone, which makes electronic payment systems. It plunged 8 3/4 to 17 1/2 after saying quarterly earnings will drop because of a squeeze on margins.

* Insurance stocks dropped after Kidder Peabody cut earnings estimates, citing the effects of lower interest rates. AIG slid 3 1/2 to 94 1/4, General Re fell 3 3/4 to 120 1/8 and St. Paul Cos. lost 1 3/8 to 90 1/8.

* On the upside, many retailers gained on reports of healthy September sales. Sears jumped 1 5/8 to 57 7/8, Wal-Mart rose 1 1/4 to 26, Dillard Department Stores gained 1 3/8 to 37 1/8, Dayton Hudson advanced 1 3/4 to 69 3/8 and Gap surged 2 to 31 1/4.

* Many industrial issues also continued to rebound from their September selloff. Litton Industries soared 3 1/2 to 65 5/8, 3M Co. rose 2 1/8 to 103 3/4, USX-U.S. Steel added 1 1/4 to 33 and chemical giant Monsanto rocketed 2 1/4 to 69, a 1993 high.

* Brokerage stocks resumed their rally. Charles Schwab zoomed 1 5/8 to 37 1/2, Merrill Lynch gained 2 7/8 to 101 1/8 and Dean Witter added 1 1/4 to 46 1/4.

Other Markets

Bond yields settled mostly higher, led by shorter-term rates.

The yield on three-month Treasury bills rose to 3.07% from 3.03% on Monday, after the government said it will auction a record $25.6 billion in short-term securities next Tuesday.

That was up sharply from $23.6 billion from the weekly bill auction held Monday, spurring investor concern that the extra supply will force yields up temporarily.

Meanwhile, the yield on the Treasury's benchmark 30-year bond held steady at 6%.

In the municipal market, cities and states rushed out $1.5 billion in new tax-free bonds Tuesday. But demand was mixed as many investors refrained from major moves ahead of Friday's report on September employment.

That report will give the first major indication of the economy's strength in September, which could set the tone for interest rates in the near term.

In other markets Tuesday:

* The dollar ended mixed against major currencies. It closed at 105.75 Japanese yen in New York, down from 105.79 on Monday. It also closed at 1.626 German marks, up from 1.624.

* Gold was little changed. On the New York Comex, gold for current delivery closed at $353 an ounce, up 30 cents from Monday. Silver settled at $4.06, up 1 cent.

* Oil prices were choppy before dropping slightly, the third losing session in a row. Light, sweet crude for November settled at $18.39 a barrel, down 3 cents on the New York Merc.

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