Stock Prices Extend Their Advance

Stocks continued to advance Tuesday, though at a slower pace, as some surprising takeover announcements helped stoke investors’ interest.

Following Monday’s surge, blue chips waffled for much of the day, then closed higher on a late buying wave.

The Nasdaq composite index turned in another heady performance as technology stocks remained the clear favorites on Wall Street. Smaller stocks in general also were strong.

The Nasdaq index jumped 25.75 points, or 1.5%, to 1,746.46, a 14-month high. It gained 3.4% on Monday and has risen a net 7.6% in the last five sessions.

By contrast, the Dow industrials eked out a gain of 6.30 points, or 0.1%, to 9,223.09, after surging 146 points Monday.

The Standard & Poor’s 500 was up 3.42 points, or 0.3%, to 1,007.84.

Smaller stocks outpaced the blue chips, as they have for much of this year. The Russell 2,000 index jumped 8.26 points, or 1.8%, to a 52-week high of 473.97.

Rising stocks outnumbered losers by 19 to 14 on the New York Stock Exchange and by 21 to 11 on Nasdaq, in active trading.

The market’s surge of the last few months has been based in large part on expectations that corporate earnings are poised to accelerate along with the economy. Evidence of any acceleration could come in the second-quarter earnings reports due in the next three weeks.

The sharp gains in technology shares mean the stakes are high as those companies report results, analysts said.

Today, Internet portal Yahoo is scheduled to report its quarterly results. The stock, up 115% this year, eased 17 cents to $35.10 on Tuesday.

A takeover announcement in the tech sector helped to spur more interest in the stocks: Data-storage giant EMC said it would buy software firm Legato Systems for $1.2 billion in stock. The news pushed Legato up 81 cents, or 8.9%, to $9.91, while EMC dipped 50 cents to $11.24.

A number of other takeover announcements, including some hostile deals, suggested that corporate managers are more confident in the economic outlook.

The deals also caused investors to reconsider the stock values of companies similar to the takeover targets.

In the trucking business, for example, Yellow’s bid for Roadway sent shares of other trucking firms soaring. Arkansas Best jumped $4.10, or 17%, to $28.10 and USF gained $3.30, or 12%, to $30.39.

In the auto-parts business, ArvinMeritor’s hostile offer for Dana helped drive other parts makers higher, including Delphi, up 33 cents to $8.86; Visteon, up 20 cents to $7.05; and Borg Warner, up $1.20 to $66.30.

But as stocks continue to rise, some money managers are increasingly nervous.

“We’ve gone a little too far, too fast,” Dennis Fitzpatrick, who helps manage $2.5 billion for First Investors Management in New York, told Bloomberg News. “I’m betting the recovery will be a little less strong than most optimists [expect] in the second half.”

In other markets Tuesday, Treasury bond yields were mostly flat, holding near eight-week highs. The 10-year T-note yield ended at 3.72%, down from 3.73% on Monday.

The euro sank further against the dollar, ending at $1.131, down from $1.133 on Monday.

Among the day’s highlights:

* Internet-related stocks were mostly higher, adding to recent gains. Amazon.com jumped $1.46 to $40.51, Websense shot up $4.64, or 30%, to $20.26, Sohu.com rose $1.62 to $36.36 and Homestore leaped 83 cents, or 46%, to $2.62.

* Broadcom, the world’s biggest maker of cable-modem chips, rallied 97 cents to $29.52. A Lehman Bros. analyst said the company may report better-than-expected second-quarter profit and revenue growth. The analyst raised his recommendation on the stock to “overweight” from “equal weight.”

* Retailers rallied on some upbeat June sales reports. Pacific Sunwear soared $1.88 to $28.28, Chico’s FAS rose $2.85, or 13%, to $24.95 and Kohl’s gained $2.61 to $54.89.

* Pepsi Bottling Group advanced $1.52 to $22.25 on quarterly earnings that were down, but still a penny a share higher than analysts expected.

* Foreign markets were mixed. Japan’s Nikkei-225 index rose 1.1% to 9,898.72, but France’s CAC index eased 0.1% to 3,177.97.