FINANCIAL MARKETS : Nasdaq Hits New High; Gold Jumps

Market Overview

* The stock market advanced despite weakness in blue-chips. Two key indexes of smaller stocks hit new highs.

* Gold prices leaped to their highest level in six weeks on speculative buying and renewed fears of inflation.

* In the bond market, short-term yields moved up to their highest levels since August.

Stocks

For a second day, the Dow industrials failed to reflect the broad market’s strength.

The Dow slipped 0.28 point to 3,593.13, but winners topped losers by about 11 to 9 on the New York Stock Exchange and 13 to 10 on Nasdaq.

The Nasdaq composite index of mostly smaller stocks jumped 4.81 points to a record 772.46. A purer measure of small-stock performance, the Russell 2000 index, rose 1.47 points to a record 256.50.

The continuing advance of smaller stocks, which have led the market since mid-July, is “the story of the market searching for growth” in a weak economy, said David Shulman, strategist at Salomon Bros.

Analysts also noted that investors’ fascination with the technology and telecommunications sectors remains strong. “It seems like all the money is flowing into telecom, technology and the interactive-related stocks,” said Guy Truicko, money manager at Unity Management.

Meanwhile, money is flowing out of many blue-chip stocks and many utility issues. The Dow utility index lost 1.45 points to 241.76 Tuesday, while the broad market rose. Experts say investors may be selling utilities on fears that interest rates are bottoming.

Among Tuesday’s highlights:

* Technology stocks led the Nasdaq market higher, fueled by computer networker Wellfleet Communications. Its stock surged 6 1/8 to 53 1/4 after the firm reported strong quarterly earnings.

Other high-tech issues advancing included Cisco Systems, up 4 7/8 to 50 7/8; Newbridge Networks, up 1 3/4 to 68 3/8; Powersoft, up 2 3/4 to 38 1/2; Sybase, up 2 1/4 to 64 1/2, and Oracle, up 2 1/8 to 63 1/8.

* Semiconductor stocks were mixed, after Motorola reported earnings above expectations. Motorola jumped 5 to 103 1/2 and Texas Instruments gained 1 3/4 to 66 1/2, but Intel slipped 1/2 to 65.

* Among telecom issues, IDB Communications leaped 3 1/8 to 56 3/4, Ericsson jumped 2 3/8 to 56 3/4 and Tellabs surged 4 1/4 to 73 1/4.

* Biotech stocks came to life after Centocor said its Panorex drug was found to have a potential use in treating rectal cancer. It surged 3 to 14 1/4. Other biotech issues rising included Amgen, up 3/4 to 41 3/4; Biogen, up 5/8 to 39 1/8; Gensia, up 1 1/4 to 28 1/2, and Chiron, up 3 5/8 to 85 1/2.

* Brokerage stocks surged as several major firms reported healthy quarterly earnings gains. Merrill Lynch jumped 2 7/8 to 101 5/8, Bear Stearns rose 5/8 to 24 3/4, Paine Webber leaped 1 5/8 to 34 3/8 and Charles Schwab added 1 1/4 to 37 3/8.

* Among other companies reporting earnings, General Electric lost 1 to 95 1/2, International Paper edged up 1/8 to 58 3/4, L.A. Gear shot up 1 1/4 to 11 7/8 and Mellon Bank surged 3 1/8 to 58 1/4.

Overseas, the action cooled. Tokyo’s Nikkei average ended down 241.33 points at 20,137.31. In London, the FTSE-100 index fell 7.5 points to 3,094.7. In Frankfurt, the DAX index closed at 1,998.61, down 12.41 points.

Commodities

Gold rocketed on New York’s Commodity Exchange, where bullion for current delivery jumped $7.60 an ounce to settle at $367.80.

Silver followed gold higher, gaining 11.1 cents to $4.42 an ounce.

Traders said big purchases by commodity funds helped drive gold up. The funds tend to be short-term traders, and often buy when the metal’s price pattern on a chart reaches certain key technical levels that suggest a “breakout” is possible.

But analysts note that many gold buyers may be betting on stronger economic growth next year, and with it a resurgence in inflation.

Gold has climbed from less than $342 an ounce over the past month. It had jumped past $400 in mid-summer before a broad selloff hit.

Now, with growing fears that interest rates are bottoming, some investors may be flocking to gold as a safe haven in case there’s turmoil in bond and stock markets, analysts say.

Elsewhere, oil prices eased on the New York Mercantile Exchange. Light, sweet crude oil for November delivery fell 6 cents to $18.71 a barrel.

Credit

Short-term interest rates jumped, following surprising high yields at the Treasury’s weekly auction of Treasury bills.

The Treasury sold six-month bills at an average discount rate of 3.12%, up from 3.08% last week and the highest since Aug. 23.

Traders said investors are increasingly nervous about the Treasury’s plans to borrow more via short-term securities this fall. That will be necessary because the government decided earlier this year to cut back on new 30-year bond sales. The differences is being made up in shorter-term issues.

Analysts said there also was nervousness ahead of the September inflation reports due later this week. The government will report on wholesale prices on Thursday and consumer prices on Friday.

If the inflation numbers are higher than expected, investors may assume that the Federal Reserve will again lean toward higher short-term interest rates.

Meanwhile, long-term bond yields closed flat, as an early rally was halted by the rise in short rates and by the surge in gold prices.

The 30-year T-bond yield held steady at 5.92%.

Market Roundup, D6