FINANCIAL MARKETS : Promising Economic News Pushes Dow to Record; Yields Climb Again : Market Overview

The Dow Jones industrial average reached a new high Monday amid encouraging news about the economy, but rising interest rates depressed smaller-company stocks.

* Treasury bond yields rose for a third straight session as investors reacted to the fresh signs of economic strength, including strong automobile sales.

Stocks

Solid sales reports from the major auto makers and a better than expected report on existing home sales encouraged investors and buoyed stocks of companies most sensitive to economic cycles, such as chemicals and mining.

The Dow industrials rose 24.31 points to 3,673.61, eclipsing its previous all-time high of 3,652.09 set Aug. 25. Meanwhile, in the broader market, declining issues outnumbered advances by about 7 to 6 on the New York Stock Exchange. Big Board volume came to 260.31 million shares, down from 302.12 million Friday.

Many blue-chip stocks sank when other market indexes were hitting record highs earlier this month, but they have rebounded in recent days. Allied Signal rose 1 1/4 to 72 7/8 and Aluminum Company of America rose 1 3/4 to 70 3/4.

“The psychology about the economy has been negative,” said James Melcher, founder and president of Balestra Capital. “But people are beginning to realize the glass is half full, not half empty.”

The good economic news, however, depressed bond prices, pushing up interest rates. And stock investors dislike rising yields, which make the potential returns from shares less appealing.

Monday’s rising yields rattled smaller-company stocks, which had jumped to lofty heights in recent weeks. Many of the shares had become expensive relative to earnings, investors said.

“Small stocks continued the backtracking they began last week,” said Mary Farrell, investment strategist with Paine Webber.

Stocks were mixed abroad. London’s Financial Times 100-share average eased back from last week’s record-setting highs, closing at 3,184.8, down 14.2 points. In Frankfurt, the 30-share DAX average closed 8.22 points up at 2,074.39, while Tokyo’s 225-share Nikkei average rose 44.50 points to 20,309.33.

Among the market highlights:

* General Motors lost 1 1/4 to 44 3/4 after reaching a three-year pact with the United Auto Workers union that gave the auto company little relief from high pension and medical costs. Minnesota Mining & Manufacturing gained 7/8 to 105 3/4 and United Technologies shot up 2 1/2 to 64 1/4. McDonald’s was up 2 to 56 1/2 and Exxon rose 1 to 65 5/8.

* Elsewhere, U.S. Healthcare rose 2 1/4 to 45 3/4 after it reported a 63% leap in third-quarter earnings.

* Coca-Cola Bottling gained 3 1/8 to 36 5/8. The company reported third-quarter earnings of 62 cents a share, compared to estimates of 25 to 38 cents.

* Semiconductor maker Intel fell 3/4 to 63 1/2, Apple Computer dropped 1/4 to 30 and computer networking company Wellfleet Communications dropped 1 to 51 1/2.

* In telecommunications, Bell Atlantic dropped 1 1/8 to 61 5/8, and Nynex shed 1 1/8 to 42 3/8.

* Paramount Communications rose 1 3/8 to 79 after Viacom sweetened its offer for the company, stepping up its bidding war with QVC Network, which fell 1 1/8 to 53 7/8. Viacom dipped 3/8 to 59.

* The Nasdaq index fell 2.93 to 769.75, pushed lower partly by Ross Systems. The stock dropped 4 1/4 to 7 1/4 after the company reported a fiscal first-quarter loss.

Credit

The tumble in the 30-year bond’s price sent yields soaring to 6.0% for the first time in more than two weeks, raising questions about whether this year’s powerful rally in fixed-income securities is ending. Prices and yields move in opposite directions.

But a small market recovery toward the end of trading eased some investor concerns.

The rise in the long bond’s yield, from 5.97% on Friday, brought its three-day gain to more than 0.20 percentage point. Its price recovered more than half the day’s losses to end down 5/16 point, or $3.13 per $1,000 in face value.

The late-day recovery came amid a decline in futures prices of oil, gold and other commodities, which eased concerns that inflation is headed higher.

Other Markets

In New York, the dollar closed at 108.58 Japanese yen and 1.686 German marks, up from Friday’s 108.10 yen and 1.676 marks.

* On the New York Comex, gold settled at $369.40 an ounce, down 80 cents from Friday, and silver closed at $4.404 an ounce, down from $4.439.

* Light, sweet crude oil for December delivery fell 56 cents to $17.51 a barrel on the New York Merc.

Market Roundup, D10