Stocks Hit Records Despite Fed Warning

The stock market set new highs across the board Tuesday, despite one of the strongest warnings yet from a Federal Reserve Board governor that the central bank may be poised to raise interest rates.

Led by surging shares across a variety of sectors--including the Internet, gold and oil-services--most major indexes hit record highs, with the Dow Jones industrial average rising 43.10 points, or 0.5%, to 9,184.94.

The Nasdaq composite jumped 16.73 points, or 0.9%, to a record 1,903.87, and the New York Stock Exchange composite edged up 0.1% to a record 584.80.

Smaller stocks, in general, were stronger than blue chips: Winners topped losers by 24 to 19 on Nasdaq, while winners had a 16-to-14 edge on the NYSE.

The Standard & Poor’s index of 600 smaller stocks rose 0.8% for the day, while the blue-chip S&P; 500 rose 0.2%.

Analysts said Monday’s first-quarter earnings report from IBM Corp. helped buoy sentiment. Even though the computer giant reported lower earnings--in part because of personal computer price wars--the company didn’t sound downbeat about prospects for the rest of the year.

Hopeful investors bid the stock up $6.81 to a record $118 on Tuesday, leading another broad advance in tech stocks.

“A lot of investors were expecting a disappointment, so there was relief,” said Philip Schettewi, who oversees $4.5 billion at the Washington, D.C., office of Loomis, Sayles & Co. “IBM is involved in just about every technology out there. This tells me business is probably OK for a lot of companies.”

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Meanwhile, Internet-related stocks--in particular, small, thinly traded issues--showed the day’s most spectacular gains, as the mania to jump aboard that sector reached a fever pitch. (Story, D1)

The stock market overall ignored a warning from Fed Gov. Roger Ferguson. In an interview with Reuters he warned that the Fed will raise short-term rates if the Asian economic crisis fails to slow the hot U.S. economy. (Story, D8)

The bond market, at least, seemed to take Ferguson seriously: Yields rose, with long-term bond yields reaching their highest levels since March 30. The 30-year Treasury bond yield rose from 5.93% on Monday to 5.95%.

But bond traders said yields also were pressured by heavy issuance of corporate bonds this week, as many companies rush to borrow at what are still viewed as reasonable rates. To free up room in their portfolios for corporate issues some investors sell Treasuries.

“There’s really good demand out there for corporate paper,” said Andrew Palmer of ASB Capital Management in Washington.

On Wall Street, many stocks responded to the continuing stream of first quarter earnings reports, which bullish analysts say have been better than many investors had feared, given the effects of the Asian crisis on U.S. multinationals’ earnings.

Still, “People are trying to say that earnings are beating expectations, but it’s ‘recently revised downward’ numbers they’re beating,” said Henry Herrmann, chief investment officer at Waddell & Reed of Overland Park, Kan.

Among Tuesday’s highlights:

* Major tech stocks following IBM higher included Dell, up $4.69 to $74.38; Intel, up $2.44 to $78.94; Lucent Technologies, up $2.81 to $74.25; Hewlett-Packard, up $2.56 to $66.94; and Texas Instruments, up $1.75 to $63.

* While smaller Internet-related issues rocketed, some bigger names were hit by profit-taking. America Online fell $1.13 to $74.81; Infoseek dropped $2.31 to $36.88.

* In the drug group, Pfizer rose for a fourth day, climbing $2.81 to $116.19, on optimism that its new impotence pill, Viagra, will be a bestseller. Pfizer soared almost 8% Monday. With a stock market value of almost $151 billion, Pfizer is now the largest U.S. drug company, ahead of Merck, which fell $2.13 at $120.13.

But American depositary receipts of SmithKline Beecham fell $2.75 to $58.13, after the pharmaceutical company reported earnings of 42.9 cents, below the average estimate of 47 cents a share.

* Another rise in gold prices helped lift mining stocks. Newmont Mining, North America’s largest gold miner, jumped $2 to $33.38. Gold for June delivery rose $3.30 an ounce to $311.20 in New York.

* Oil field service and equipment stocks soared as investors sought companies with good earnings prospects, which have lagged the market’s gains. Schlumberger rallied $3.69 to $80.63, Smith International gained $3.50 to $60.69 and Cooper Cameron rose $2.75 to $65.19.

* Other stocks reacting to earnings reports included Delta Air Lines, up $2.13 to $125.13; Wells Fargo, down $7 to $375; and Chase Manhattan, up $4.44 to $139.13.

In foreign trading, most Asian markets ended lower, as traders reacted glumly to a rate hike in Indonesia aimed at laying the groundwork for economic reforms and boosting the rupiah currency.

The main Jakarta stock index shed more than 2% after Indonesia’s central bank raised its key interest rates by an average of 4.1 percentage points. The rupiah hardly budged, with analysts citing disappointment at the extent of the rise.

Hong Kong shares fell 1.6% in thin trading, while stocks in Kuala Lumpur lost more than 2%.

In currency trading the dollar fell to a 2 1/2-month low against the German mark on signs Germany’s economy may be growing fast enough for the Bundesbank to raise interest rates.

A bigger-than-expected gain in money supply, a key measure of future inflation in Germany, fueled concern the central bank may raise borrowing costs to keep prices in check.

“Europe is picking up. We’re starting to see signs of stronger growth in Germany,” Greg Krenzer of Van Eck Associates Corp. said. “We’re starting to get more bullish on the mark.”

In late New York trading, the dollar fell to 1.7889 marks, it’s lowest since Feb. 6, from 1.8010 marks Monday. It slumped to 131.35 yen from 132.15 yen on concern the Bank of Japan would sell dollars to boost the yen.

Market Roundup, D8