FINANCIAL MARKETS : Roller Coaster for Bonds, Historic Day for the Dow

Stocks overcame a slumping dollar and a wild ride in the bond market to make history Thursday, pushing the Dow Jones industrial average over 4,000 for the first time.

But the weak undertone in the dollar and in bonds led some analysts to question if stocks’ hot rally can continue in the near term.

“Should it hold (at 4,000)? Probably not,” warned Len Hefter, head of Nasdaq stock trading at Jefferies & Co. in Dallas.

Still, the Dow cared little for naysayers for most of Thursday, surging more than 45 points by midafternoon--and lifting the broad market--on optimism that the Federal Reserve Board is nearly done raising interest rates.

Bullish pronouncements from longtime market guru Elaine Garzarelli also stoked enthusiasm. Garzarelli, formerly of Lehman Bros. and now on her own in Boca Raton, Fla., told TV interviewers that the stock market was beginning a new bull run, to be led by drug stocks, food stocks, utilities and other groups that usually perform well in a slower economy.

Late in the day, however, the Dow’s rally faltered as bond yields began to turn up.

Yields had tumbled early in the day, responding to Fed Chairman Alan Greenspan’s suggestion to Congress that the central bank may be done raising rates. The 30-year Treasury bond yield, which had closed at a 5 1/2-month low of 7.54% on Wednesday, fell as low as 7.50% by midday Thursday.

But the market was taken by surprise by comments from Fed Vice Chairman Alan Blinder, who said in an interview that it is premature to believe that the Fed is done raising interest rates. He said the Fed will need to study a few more months of economic data .

“That took a little bloom off the rose,” said Maury Harris, economist at PaineWebber in New York. The 30-year T-bond yield closed at 7.54%, unchanged from Wednesday.

As yields rebounded, the Dow’s gain eroded. Near the close, the Dow was hovering at 3,999. But in the final minutes, renewed buying pushed it over 4,000 again, and it closed at 4,003.33, up 30.28 points.

In the broad market, winners outnumbered losers by about 14 to 8 on the New York Stock Exchange in heavy trading of 395 million shares.

But other market indexes, most of which still haven’t regained their all-time highs set in 1993 and ‘94, mostly posted smaller percentage gains than the Dow on Thursday. The Nasdaq composite index, for example, added 3.42 points to 791.35, a 0.4% gain versus the Dow’s 0.8% rise.

Some analysts say that while the broad market has advanced with the Dow since mid-December, stocks overall don’t appear to be in as good a shape as the Dow’s 4,000 would imply.

On Thursday, only 97 NYSE stocks hit new highs. “For a market where the averages have been making new highs, it is a little rare, historically, to have as few individual stocks reaching new highs,” said Jay Tracey, who manages about $950 million in small and medium-sized stocks at Oppenheimer Management Corp.

The dollar’s continued weakness also worries some analysts. Expectations of a slower U.S. economy and lower interest rates could cause foreign investors to pull out of U.S. stocks and bonds in favor of European markets, where growth is expected to be stronger and rates are expected to continue rising.

Nonetheless, some traders say U.S. investors’ expectations of a “soft landing” for the economy, with continued corporate earnings growth, low inflation and no threat of recession, could bring many more investors back into stocks--though perhaps after a short-term pullback.

The widespread belief that U.S. stocks are at worst fairly priced relative to earnings, though not overpriced, will work in the market’s favor, some say.

“Right now there’s a buying binge in blue chips, but sooner or later smaller stocks will catch fire too,” said Alan Ackerman, analyst at Fahnestock & Co. in New York.

Among Thursday’s highlights:

* The Dow topped 4,000 with help from a mix of both industrial and consumer stocks. Alcoa gained 1 1/8 to 82 1/8, GM rose 1 to 42 3/4, Philip Morris rebounded 1 1/4 to 59 1/2 and Boeing added 3/4 to 47.

The Dow’s 33% rise from 3,000 to 4,000 over the past four years has been led largely by industrial issues such as Goodyear, AlliedSignal, Caterpillar and Union Carbide.

* Interest-rate-sensitive stocks rallied. J.P. Morgan gained 1 3/8 to 63, Citicorp rose 1 to 44 3/4, Morgan Stanley climbed 1 5/8 to 66 7/8 and Federal National Mortgage surged 1 1/8 to 79 3/8.

* On the downside, some technology stocks sold off in profit taking. Compaq fell 2 to 34 1/8, Motorola dropped 1 1/2 to 56 1/2 and Dell lost 1 3/4 to 44 1/4.

Among foreign markets, Mexico’s Bolsa index took another dive, falling 96.55 points to 1,611.73--lowest since mid-1993--even though the peso strengthened a bit.

In other overseas trading, London’s FTSE-100 index gained 29.8 points to 3,049.3, while Frankfurt’s DAX average gained 25.08 points to 2,118.24.

But in Tokyo, the 225-share Nikkei average ended 276.63 points lower at 17,830.02.