FINANCIAL MARKETS : Dow Hits Record High as Fed Board Convenes

Fresh demand for “cyclical” stocks tied to the economy’s swings sent the Dow Jones industrial average to a new high Wednesday, though the broader market was less impressive.

Against the backdrop of the Federal Reserve Board’s meeting in Washington, the Dow index surged 30.08 points to a record 4,615.23. It was the first close above 4,600, the eighth such “century” mark to fall this year in the Dow’s relentless rally.

The Nasdaq composite index of mostly smaller stocks, heavy with technology issues, also closed at a record, rising 7.29 points to 941.82.

But other indexes posted more modest gains. The Standard & Poor’s 500, for example, added just 0.17 point to 547.26. And though trading was active on the Big Board, winners topped losers by only about 4 to 3, a weak margin for such a strong Dow gain.

The return to cyclical stocks such as machinery and metal issues reflected growing faith that “the economy will probably right itself and grow again” later this year after the first-half slowdown, said Grace Messner, who manages $800 million at Wilmington Trust Co.

The big question is whether the market expects that revival to be fueled by a cut in short-term interest rates by the Fed. If too many investors are betting on a Fed cut--but the central bank concludes its meeting today without acting--stocks could be primed for profit taking.

Some analysts, however, say the market’s strength in recent days may signal that investors don’t care if the Fed cuts rates this week or not. Rather, says Messner, the attitude may be that the economy will be OK, and if it isn’t, the Fed will cut rates later as necessary.

“I have a hunch that this is a market starting to realize that the Fed is predisposed towards easing, although it may not ease” this week, said Thomas McManus, strategist at Morgan Stanley & Co.

Meanwhile, in the bond market, yields were modestly lower as nervous traders tried to gauge the likelihood of a Fed cut.

Wayne Angell, a Bear Stearns economist and former Fed governor, said he expected the central bank to shave its benchmark short-term interest rate, the federal funds rate, from the current 6% to 5.75% this week.

Bond yields, which have already fallen sharply in recent months in anticipation of a Fed cut, eased Wednesday but are still above their recent lows. The 30-year Treasury bond yield slipped to 6.60% from 6.63% on Monday but remains above the 16-month low of 6.47% set June 22.

Analysts admit it’s anyone’s guess how bonds will react, whichever way the Fed goes today.

Among the market highlights:

* The latest rally in the Nasdaq market pushed the total value of all Nasdaq-traded stocks over the $1-trillion mark for the first time. As recently as five years ago, the Nasdaq market’s capitalization was just $386 billion.

* Among cyclical stocks, Alcoa jumped 1 3/4 to 52 3/4, Alumax soared 2 1/8 to 33 3/8, Monsanto surged 2 to 92 3/4 and Caterpillar rose 1 5/8 to 66.

Auto stocks also were higher. Chrysler rose 1/2 to 49, Ford gained 3/8 to 30 3/4 and GM added 7/8 to 48 3/4.

* Technology issues were mixed, as profit taking hit some semiconductor stocks. Advanced Micro Devices lost 7/8 to 35 3/8 and Micron Technology fell 1 1/2 to 52 5/8.

But Hewlett-Packard rose 1 1/8 to 76 1/8 and disk drive maker Seagate surged 1 3/8 to 40 1/2.

* Some investors sold some consumer issues as they bought industrial stocks. PepsiCo fell 1 1/4 to 43 7/8; Kellogg lost 7/8 to 70 5/8.

In London, stocks soared after Prime Minister John Major’s leadership victory. The FTSE-100 index rocketed 45.7 points to 3,394.9.

Hong Kong shares rose on signs of warmer Sino-British relations over the colony. The Hang Seng index soared 224.80 points to 9,407.27.

In Tokyo, the 225-share Nikkei average added 74.70 points to 14,830.44.