FINANCIAL MARKETS : Dow Hits Record in Late Rally; Default Warning Hurts Bonds

A late surge of computer-directed buying sent the Dow Jones industrials to a record high Monday, even though bond yields rebounded sharply on fresh concerns about a U.S. Treasury default.

Jitters over the Treasury’s woes also helped send gold prices up, as Treasury Secretary Robert Rubin warned that a U.S. default may be inevitable by March 1.

On Wall Street, the Dow index rose 34.68 points to a record 5,219.36, topping the previous high of 5,216.47 set Dec. 13.

The market gyrated for much of the day before computerized program buying helped stoke blue-chip shares in the final minutes of trading. But even before the computers kicked in, investors were bidding many heavy-industry stocks up on new optimism about the companies’ earnings prospects.

Analysts said that optimism was rooted in Chrysler’s surprisingly good earnings report Friday. Chrysler soared 3 5/8 to 57 3/4 on Monday. “You’re starting to get some of the old, solid companies report better earnings,” noted John Kornitzer of Kornitzer Capital Management in Shawnee Mission, Kan.

Goodyear Tire, which said Monday that it expects to probably meet analysts’ earnings estimates for the fourth quarter despite the U.S. economic slowdown, saw its shares jump 2 5/8 to 46 1/8.

Many technology stocks also continued to rebound Monday, pulling the Nasdaq composite index up 10.99 points to 1,029.44.

Still, no major stock index other than the Dow hit a record high. And despite the strength in some industrial shares, the market overall was fairly flat. Big Board winners edged losers by just 12 to 11.

Analysts said the broad market may have been held back by the rise in bond yields.

Interest rates jumped across the board after Treasury Secretary Rubin said that by March 1, the United States government will run out of cash and will exhaust emergency borrowing measures to avoid default on its debts, if Congress doesn’t act soon to raise the federal debt ceiling.

In a letter to House Speaker Newt Gingrich, Rubin said he has been given clearance from his legal advisors to take three steps to forestall default on Feb. 15, when the Treasury is due to make a $25-billion interest payment.

After that, however, “there are no legal and prudent options that I am able or willing to take,” Rubin said, and the Treasury faces the risk of a first-ever default.

Key Republicans have been unwilling to raise the debt limit without a balanced-budget agreement from President Clinton.

Nervous traders dumped Treasury bonds in the wake of Rubin’s warning. The 30-year T-bond yield jumped to 6.04% from 5.97% on Friday. The yield on two-year T-notes rose to 5.09% from 5.04%.

The default threat is “a clear negative” for bonds this week, said Bentley Myer, a principal at William Blair Investment Management. “Any time you get close to raising the specter of a default, it affects short-term sentiment.”

Rubin’s announcement came just in advance of a Treasury note auction: The government plans to sell $18.25 billion in two-year notes today and $12 billion in five-year notes Wednesday.

Meanwhile, what was bad for bonds was good for gold, as the metal’s price hit a 2 1/2-year high. February gold futures on the Comex jumped $3.60 to $403.50 an ounce as some investors sought safe haven. Silver also gained, with February futures up 12.5 cents to $5.58 an ounce on the Comex.

Among Monday’s highlights:

* Industrial shares rising included GM, up 2 5/8 to 50; DuPont, up 2 to 73 1/2; Caterpillar, up 3 3/4 to 62 3/4; TRW, up 2 7/8 to 78 1/8; and Cummins Engine, up 3 3/8 to 38.

* In the tech sector, Hewlett-Packard jumped 3 to 80 3/4, FileNet leaped 2 7/8 to 52 1/4, Motorola added 2 1/8 to 53 1/8 and Seagate surged 5 1/8 to 57 7/8. Also, Netscape rocketed 16 3/8 to 161 and American Online climbed 4 1/4 to 39 1/4 after the Wall Street Journal reported the two were talking about an alliance.

* GM Hughes Electronics soared 4 3/4 to 52 3/8 after AT&T; said it will buy a 2.5% stake in Hughes’ DirecTV unit. AT&T; eased 3/4 to 64 5/8.

* Woolworth gained 1 1/4 to 11 1/8 after Greenway Partners, a major shareholder, proposed that the troubled retailer spin off its athletic footwear division.

* Cordis surged 7 13/16 to 107 9/16 after Johnson & Johnson said it will buy Cordis as planned, ending rumors that the deal was unraveling. J&J; added 3/8 to 86 3/4.

In foreign trading, Mexico’s Bolsa index hit a record high, rising 29.06 points to 3,087.48.

Market Roundup, D8