Blue-chip stocks continued their wild bungee-jumping Tuesday, rebounding in the final moments of trading to post a small gain after a steep sell-off earlier in the day.
In a third straight volatile session, the Dow Jones industrial average managed to rise 2.89 points to 5,583.89, after being down as much as 96. This came after Friday's 171.24-point plunge and Monday's unexpectedly strong 110.55-point recovery.
However, broader market indexes declined Tuesday, with the Standard & Poor's 500-stock index falling 2.93 points to 637.09 and the Nasdaq composite index dropping 7.45 points to 1,073.05. The Dow 30 was the only major index to rise.
The bond market also yo-yoed, with the yield on the benchmark 30-year Treasury bond ending slightly higher at 6.66%, up from 6.63% on Monday. Bond yields rose sharply in the morning but fell back after a report on retail sales at chain stores showed that consumer spending was not as healthy as expected.
That sharp early rise in yields was the major force behind the sharp early sell-off in stocks. Since Friday, stocks have generally risen with lower bond yields, and vice versa.
Analysts said the rebound in stocks was led by news from Washington that President Clinton had signed a measure preventing a default on the nation's debt. Clinton also urged Congress to pass a separate bill to fund the federal government past a March 15 deadline and thus prevent a shutdown.
Nonetheless, investment strategists warned that investors, who have savored the 5 1/2-year run-up in stock prices, should brace for more volatility in the weeks ahead.
"It may be a couple of months before we're able to sort this out," said Carol Stone, senior economist with Nomura Securities International, a New York investment firm.
Although mom-and-pop investors appear for the most part to be taking the market gyrations in stride, professional investment managers are being whipsawed by economic news, market watchers said.
"When you're not sure which way the market's going, every little piece of information seems important," said Aris Protopapadakis, a USC finance professor. "Nobody wants to get caught with their pants down."
Greg Menne, director of fixed-income investments at A.G. Edwards & Sons Inc., a St. Louis brokerage, said the bond market in particular is "looking for excuses [for prices] to go down."
"All in all," he said, "I don't think we've seen the bottom. We've got a lot of numbers that are going to show up."
Menne said the release later this week of two key inflation indexes--producer prices and consumer prices--could be crucial. Coming after last Friday's surprisingly robust report on February job gains, further signs that the economy is growing too quickly--and that interest rates therefore might rise--could send bond yields sharply higher. Higher bond yields lately have rattled stocks.
Further volatility could come from Friday's "triple-witching," when stock futures, options and index options expire simultaneously.
Until last Friday's jobs report, Wall Street observers had banked on a steady diet of weak economic readings to help the Federal Reserve Board justify a fourth interest rate cut in a year to help spur business activity. But news that companies had created 705,000 jobs in February dashed such hopes.
The markets could experience a stabilizing effect from individual investors, particularly baby boomers with 401(k) retirement plans heavily invested in stocks and bonds. They have been counseled repeatedly to ride out the markets' ups and downs.
In general, the stocks of cyclical corporations fared fairly well in Tuesday's gyrations, whereas the stocks of moderate- and slow-growth companies took hits. Utilities suffered setbacks.
Declining issues outnumbered advancing stocks by about 3 to 2 on the New York Stock Exchange, where volume totaled 454.83 million shares as of 4 p.m., almost even with Monday's pace.
Among the market highlights:
* The day's losses were spread across most industries. Among the Dow industrials, for example, IBM lost 3 to 114 1/4, chemical maker Union Carbide fell 2 to 45 5/8 and drug maker Merck fell 1 3/4 to 63 1/8.
On the plus side for the Dow, United Technologies rose 2 3/4 to 112 1/4, 3M gained 2 to 65 1/2 and Walt Disney added 1 3/8 to 67 3/4.
* Technology stocks were mostly lower. Digital Equipment closed down 2 1/8 to 61 3/4, Compaq Computer lost 1 3/4 to 37 and Hewlett-Packard dropped 1 3/8 to 93 3/4.
America Online soared 7 1/8 to 55 1/2, but Microsoft sank 3/4 to 95 3/4 and Netscape fell 1 to 45 1/4. Microsoft agreed to feature America Online in its popular Windows 95 operating system. In return, America Online will incorporate Microsoft's Internet browser into its online service.
* Gymboree gained 1 3/16 to 25 1/2 as a group including investor George Soros disclosed that it had taken a 5.35% stake in the children's apparel chain.
Overseas, the Tokyo 225-share Nikkei average added 153.98 points to 19,950.27. Hong Kong's blue-chip Hang Seng index surged 205 points, or 2%, to 10,602.45.
In Mexico City, stocks rose for the second day amid optimism that interest rates won't increase substantially and that company earnings will rise. The Bolsa index rose 41.96 points, or 1.51%, to 2819.91.
Times wire services contributed to this report. Market Roundup, D8
* JOB CREATION
Economy is creating a large number of good jobs. A1
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The Dow Jones industrial average staged a miraculous recovery on Tuesday from a deep midday dive, and still is up 9.1% since Jan. 1. But for the rest of the market this year's gains are fading rapidly. Year-to-date percentage changes:
Dow Jones industrials: +9.1%
Dow transports: +5.7%
NYSE composite: +3.6%
S&P; 500: +3.4%
Nasdaq composite: +2.0%
Russell 2,000: +1.6%
Dow Jones utilities: -5.5%