The U.S. stock market closed mixed Thursday, with blue chips again at record highs, as an unexpected cut in German interest rates sent the dollar surging and sparked a roller-coaster day for bonds.
The German central bank's surprise decision also fanned inflation concerns, sending gold and silver prices sharply higher.
On Wall Street, some investors took a bullish view of the German rate cut, expecting it to help guarantee a continuing economic expansion in Europe that would be beneficial to many U.S. industrial companies.
The Dow Jones industrial average gained 11.76 points to a record 4,172.56, boosted by shares of metal, auto and chemical companies. Many transportation stocks also rocketed.
On the downside, profit taking continued to slam recently hot technology stocks, which pulled down some key market indexes.
Still, in the broad market, advancing issues led decliners by about 3 to 2 on the Big Board in active trading.
Overall, "it's a big factor that people are thinking the interest rate climate is coming down," said Don Hays, strategist at Wheat First Butcher Singer in Richmond, Va. "That will be a good sign for U.S. industry."
Some traders were also happy to see the free fall in the dollar arrested by the German Bundesbank's half-point cut in its discount rate, to 4%.
The dollar leaped to 1.409 German marks in New York, up from 1.383 on Wednesday. It also rose to 89.58 Japanese yen, up from 88.39.
The Bundesbank said its rate cut was motivated by a desire to offset the negative effects on the German economy from the strong mark, which has boosted prices of German exports.
But some economists surmised that Germany felt pressure to help other European countries, many of which have had to maintain high interest rates to keep capital from flowing into the strong mark.
Many other European central banks followed the Germans in lowering interest rates Thursday.
U.S. bonds initially rallied on news of the German cut, with the 30-year Treasury bond yield falling to 7.32% from 7.37% on Wednesday.
But later in the day, bond traders began to fear that the Bundesbank might be signaling a less restrictive posture in controlling economic growth and thus inflation. As gold and silver prices jumped on inflation jitters, bond yields rebounded.
By the close, the T-bond yield had risen to 7.41%. Yields on shorter-term securities also closed modestly higher after diving early in the day.
In commodities trading, metals traders saw a stampede into gold and silver. On the New York Merc, silver futures for April vaulted 46.3 cents to $5.22 an ounce, the highest daily settlement for near-term deliveries since Nov. 17.
Analysts said inflation concerns boosted silver, as did new reports that silver stockpiles have fallen much more than expected recently because of strong industrial demand.
Meanwhile, April gold futures rose $3.60 to $386.50 an ounce.
Among Thursday's market highlights:
* European stock markets were mostly higher in the wake of the Bundesbank move. London's FTSE-100 index surged 33.9 points to 3,176.2, while Paris' CAC-40 index jumped 40.58 points to 1,893.00. Frankfurt's DAX index eased slightly, but news of the rate cut came after the market closed.
Earlier, in Tokyo, the 225-share Nikkei index gained 51.49 points to 16,512.22.
* In U.S. trading, industrial issues leading the market higher on renewed optimism about the world economy included Alcoa, up 2 1/2 to 42 7/8; DuPont, up 1 1/8 to 61; Caterpillar, up 2 1/2 to 56 3/8; Nucor, up 2 to 55; Eaton, up 2 1/4 to 55 3/4, and Chrysler, up 1 7/8 to 42 5/8.
Among paper companies, Georgia Pacific rose 1 3/4 to 80 3/8 and Stone Container surged 2 1/4 to 23 1/8.
* Transport stocks rising sharply included UAL, parent of United Airlines, up 5 1/4 to 106 5/8; Northwest Airlines, up 2 3/4 to 28 1/8; Delta Airlines, up 2 5/8 to 64, and Burlington Northern, up 1 5/8 to 60 1/8.
* Technology stocks, meanwhile, were slammed for a second day by profit takers. Micron Technology dropped 4 to 74 1/2, Texas Instruments tumbled 3 3/4 to 90 1/4, Intel lost 1 11/16 to 85 3/8, Hewlett-Packard sank 2 1/8 to 119 1/2, Motorola slid 2 1/8 to 55 1/4 and America Online dropped 1 1/2 to 76 1/2.
* Drug stocks were also broadly lower in profit taking. Lilly lost 2 1/4 to 73 1/2, Pfizer dropped 2 1/2 to 85 7/8, Warner Lambert tumbled 1 3/4 to 78 1/4 and Schering-Plough fell 1 5/8 to 75 1/2.
* Investors also sold many telephone utilities as federal regulators ordered phone rate cuts. Southwestern Bell dropped 1 to 42 5/8, Bell Atlantic lost 7/8 to 53 5/8 and Pacific Telesis eased 1/8 to 30 5/8.
* BUNDESBANK CUTS RATES
German central bank's move aids dollar, Europeans. A1