On Wall Street the Dow industrials slipped 36.05 points to 7,897.20, but that masked strength in the broader market.
Winners topped losers by 19 to 11 on the New York Stock Exchange and by 23 to 17 on Nasdaq.
The Russell 2,000 index of smaller stocks surged 5.60 points, or 1.5%, to 368.24, nearly three times the gain of the blue-chip Standard & Poor's 500 index.
Investors seemed to be bargain-hunting in the beaten-down small-stock sector, and in other sectors that have dropped sharply this year.
Real estate investment trust stocks, for example, were red hot. And biotechnology issues soared for a second straight session, ahead of a major biotech stock conference in San Francisco this week.
On the flip side, some major blue chips were hammered on continued fears about foreign earnings. Leading the decline was Coca-Cola, down $2.81 to $56.38.
The Dow index's failure to keep up with the gains in the broad market "raises the question of a change in leadership" away from big companies, said Robert Streed, money manager with Northern Trust, which oversees $200 billion.
Big stocks trounced smaller ones for the last three years, and if the rest of the market is catching up now it may signal that stocks reached bottom in late August and early-September, he said.
The Russell 2,000 index has risen 9% from its closing low reached on Aug. 31. The Dow, by contrast, is up 4.8% from its low reached on the same day.
Foreign markets set a good tone for Wall Street on Tuesday, as Tokyo shares rallied from 12-year lows, pushing the Nikkei-225 index up 1.4% to 13,789. European and Latin American markets also got a lift after sharp declines on Monday.
Despite the Japanese stock rally, the yen weakened further against the dollar, off 0.94 yen to 135.43.
President Clinton and Japanese Prime Minister Keizo Obuchi met in New York, where Obuchi told Clinton he would speed up the disposal of Japanese banks' bad loans--a step that many analysts see as crucial to reverse the country's economic decline.
Today, Greenspan testifies before a Senate committee on global economic issues. In testimony a week ago before the House, he disappointed Wall Street and triggered a market sell-off after he said world central banks weren't contemplating a coordinated cut in short-term interest rates.
Long-term Treasury bond yields, which hit record lows in intraday trading on Monday, rose on Tuesday. The 30-year T-bond yield ended at 5.15%, up from 5.12% Monday.
But on Tuesday New York Fed President William McDonough told journalists in London that slowing growth now poses more of a danger to the U.S. economy than inflation--suggesting more Fed officials are becoming open to the idea of a cut in U.S. rates.
Among Tuesday's highlights:
* Major drug stocks zoomed, as investors sought issues with solid profit growth prospects. Warner-Lambert gained $2.06 to $75.50 and Pfizer jumped $3.63 to $101.44.
* Biotech stocks also soared, led by Chiron, up $2.38 to $21; Immunex, up $1.94 to $57.75; and Centocor, up $2.50 to $40.75.
* Maybe it was just coincidental, but many Internet-related stocks rocketed, a day after millions of cybersurfers watched Clinton's videotaped grand jury testimony on the Web. Yahoo soared $6.63 to $102.94, America Online rose $3.75 to $106.13 and Broadcast.com jumped $6.63 to $50.88.
* Also in the tech sector, Computer Sciences shot up $6.63 to $73.13 and battered Ciena surged $4.56 to $15.56.
* Multinational issues suffering continued selling included American Express, down $3.81 to $81.25; Eastman Kodak, down $1.94 to $83.44; and United Technologies, off $2.19 to $75.88.
* Among firms warning of weaker earnings--with third-quarter profit reporting season just a few weeks away--oil services firm Cooper Cameron tumbled $5 to $29.25 and Crown Cork & Seal, the largest maker of food and beverage cans, slid $6 to $31.31.
Market Roundup, D10