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 at midday. 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 jumped in the morning but fell back after a report on retail sales at chain stores last week showed that consumer spending was not as healthy as expected.
The early surge in yields was the major force behind the early sell-off in stocks, and, as on Monday, stocks recovered as bond yields later pulled back.
Analysts said the rebound in stocks also was helped by news from Washington that President Clinton had signed a stop-gap measure preventing 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 another 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 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" for bonds. "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--February wholesale prices and consumer prices--could be crucial. Coming after last Friday's surprisingly robust report on February job gains, more signs that the economy is growing too quickly or that inflation is rising could send bond yields rocketing again.
For stocks, further volatility could come from Friday's quarterly "triple-witching," when stock index futures, options and individual stock options expire simultaneously.
Until last Friday's jobs report, Wall Street 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 the economy created 705,000 jobs in February dashed such hopes.
Even without lower rates, the stock market could enjoy a stabilizing effect from individual investors, particularly baby boomers with 401(k) retirement plans heavily invested in stocks, experts say. Individuals have been counseled repeatedly to ride out the markets' ups and downs.
Also, a stronger economy could translate into more robust corporate earnings.
Still, analysts warn that stocks become more vulnerable to profit-taking as interest rates move up.
Among Tuesday's highlights:
* Despite the Dow's small gain declining issues outnumbered winners by about 3 to 2 on the Big Board in active trading.
* Industrial stocks gaining as investors looked for beneficiaries of a healthier economy included DuPont, up 3/4 to 80; 3M, up 2 to 65 1/2; United Technologies, up 2 3/4 to 112 1/4; Chrysler, up 1 to 61 1/4; and Monsanto, up 3 1/8 to 143 3/8.
* Some retail stocks also gained on optimism about the spring shopping season. Dillard surged 1 3/4 to 35 1/8, Mercantile Stores added 1 to 56 3/4, Sears rose 3/4 to 49 1/4 and Circuit City was up 1/2 to 31 3/8.
* Technology stocks were broadly lower. Digital Equipment slumped 2 1/8 to 61 3/4, Compaq fell 1 3/4 to 37 and IBM lost 3 to 114 1/4. Brokerage Salomon Bros. lowered its earnings estimates for several tech firms.
* Drug stocks fell as some investors shifted into industrial names. Merck lost 1 3/4 to 63 1/8, Johnson & Johnson eased 1 1/8 to 94 1/8 and Pfizer fell 1 1/8 to 63 3/4.
* Many utility, bank and other interest-rate-sensitive stocks also continued to decline. American Electric Power fell 1/2 to 41 1/8, Detroit Edison lost 3/4 to 34 1/8, Citicorp sank 1 to 75 7/8 and First Chicago NBD dropped 7/8 to 38 1/8.
Overseas, Tokyo's Nikkei-225 index added 153.98 points to 19,950.27 on the heels of Monday's U.S. stock rebound. Hong Kong's Hang Seng index surged 2% after plunging 7.3% on Monday. In Europe, Frankfurt's DAX index rose 1.2% after falling 2.5% Monday.
In Mexico City, the battered Bolsa stock index rose 1.5% on optimism that interest rates won't increase much more.
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%