Smaller-company stocks coasted to another record high on Tuesday, but efforts to revive the blue-chip sector fizzled again amid nagging worries about company profits and inflation.
The Dow Jones industrial average was up 16.73 points to 7,851.91.
This time, the Dow's advance was undercut by a late sell-off in IBM shares, which fell $2.88--or the equivalent of 10 Dow points--to $100 amid speculation that the computer giant's third-quarter profit won't meet expectations.
In the broader market, advancing issues outnumbered decliners by 9 to 7 on the New York Stock Exchange in fairly heavy trading.
The Nasdaq composite index racked up its third straight record, closing up 10.87 points to 1,656.22.
The Russell 2000 index, a barometer of small stocks, hit its ninth straight new high, adding 1.76 points to 437.75.
"The main reason we continue to see better strength in secondary stocks is that you have so much money coming into aggressive mutual funds" that target small and mid-sized companies, said Ricky Harrington, technical analyst at Interstate/Johnson Lane in Charlotte, N.C.
Harrington noted that recently, about a third of the money flowing into mutual funds has been earmarked for more aggressive funds. "That money has to be spent. As long as the market remains stable, the pressure's on the upside in those stocks," he said.
The Standard & Poor's 500-stock list rose 2.42 points to 933.62, and the NYSE composite index rose 0.91 point to 486.69.
Stocks drew a small boost in the morning from a report that the productivity of American workers--key to offsetting inflationary pressures--rose at a seasonally adjusted annual rate of 2.7% in the second quarter. The data represented the best improvement in 3 1/2 years and a big revision from an earlier estimate of 0.6%.
The report also said labor costs per unit of output--a key force behind prices--slowed to a crawl of 0.5% in the second quarter, down from an initial estimate of 2.4% and a rate of 3.1% in the first three months of the year.
Analysts said the economic data gave Wall Street fresh confidence that inflation would stay low, which should prompt the Federal Reserve Board to hold interest rates steady.
But the gains were hard won. The 30-stock Dow average rose more than 60 points in late trading, before program trading and profit-taking swiped most of the rally.
"It was a volatile day for blue chips, but that's the way the market is, as money shifts downward to mid- and small-cap names," said Scott Bleier, chief market strategist for Prime Charter Limited.
He said the broadening movement in the market could pave the way for the Dow to retest its old highs, set at 8,259 on Aug. 6.
"Despite the volatility in the Dow over the past few sessions, the rest of the market continues in a slow, upward bias," said Roy Blumberg, chief investment strategist at Josephthal Lyon & Ross. "It's the little engine that could."
The 30-year Treasury fell, raising the yield to 6.62% from 6.61% Monday.
Among Tuesday's highlights:
* The Dow's biggest gainers included General Motors, up $1.38 to $67.06, and Hewlett-Packard, up $1.06 to $67.50.
But Coca-Cola fell 25 cents to $58.88 after the company reported that its chief executive, Roberto Goizueta, was hospitalized with a malignant lung tumor.
* Leading Nasdaq higher were networking equipment firms 3Com, up $3.56 to $51.63; Cisco Systems, up 13 cents to $76; and Ascend Communications, up $2.38 to $42.56.
* Among individual issues, Los Angeles-based Frederick's of Hollywood gained $3.38 to $10.25 after Knightsbridge Capital increased its bid for the company to $7.75 a share from $6.90.