Stocks’ Rally Broadens as Yields Hold Steady

Wall Street’s recovery from last week’s drubbing broadened significantly Tuesday, with smaller stocks taking the lead.

Meanwhile, the bond market held steady as the Federal Reserve Board, as expected, met and left short-term interest rates unchanged.

In the stock market, the Dow Jones industrials advanced for a second day, rising 53.72 points, or 0.7%, to 7,976.31.

Smaller stocks, which failed to follow blue chips higher on Monday, staged a convincing rally Tuesday. The Standard & Poor’s SmallCap stock index jumped 1.3% to 176.63. And the Nasdaq composite index, heavy with technology stocks, gained for the first time in six sessions, rising 16.44 points, or 1.1%, to 1,553.00.

Overall, winners topped losers 17 to 12 on the New York Stock Exchange and 23 to 19 on Nasdaq.

Analysts said the stabilization of South Korea’s financial markets helped set a better tone on Wall Street, even though Asian markets closed mixed on Tuesday.

Also, bargain hunters continued to swarm in the tech sector, which was hammered last week on fears that Asia’s economic slowdown will ruin many tech companies’ earnings prospects.

“Many stocks were down the last few days, and investors who have a time horizon of more than a week saw an opportunity,” said Philip Schettewi, who oversees $4 billion as chief of the Washington office of Loomis, Sayles & Co. “It’s another case of investors buying on the dips, which overall has been a good strategy.”

In the bond market, yields closed mostly unchanged, with the Fed’s decision to stand pat fully discounted by the market. The yield on the bellwether 30-year Treasury bond remained below 6%, ending at 5.96%, versus 5.97% on Monday.

Among Tuesday’s highlights:

* Tech issues attracting buyers included Microsoft, up $2.94 to $139.06; Compaq, up $3 to $57.50; Electronic Data Systems, up $3.81 to $43.38; BMC Software, up $6.25 to $62.63; and Cisco Systems, up $2.63 to $80.13.

Also, Solectron surged $6 to $35.75. Even though the computer products firm on Monday reported quarterly earnings below expectations, some analysts said the basic business remains strong and hasn’t been hurt by Asia’s turmoil.

* Some major blue chips lured more dollars, as investors hunted for “safe” investments. General Electric rose 75 cents to a record $75.38 after CEO Jack Welch told analysts that the company will boost its free cash flow to about $5 billion in 1998 and streamline GE Capital’s operating costs.

* Utility stocks also continued to attract safe-haven seekers. The Dow utility stock index rose 0.19 point to a record 264.04. By contrast, the Dow industrials remain 3.4% below their record high set in August.

* Many drug and food stocks gained, with Unilever up $1.50 to $62.69, Eli Lilly up $2 to $66.88 and Merck up $1.19 to $106.69.

* In the smaller-stock sector, brokerage Jefferies Group jumped $2.69 to $47.38 on continuing takeover rumors, restaurant chain Planet Hollywood gained $1.44 to $13.94 and biotech firm Immunex jumped $3.63 to $52.13.

In foreign trading, European markets were broadly higher, with Paris’ key stock index up 2.6% and Frankfurt’s up 0.6%.

Latin American markets also rallied. Mexico City’s share index gained 1.6%.

Market Roundup, D8