Dow Gains 100 Awaiting Fed; Nasdaq Falls

Stocks closed mixed Monday on the eve of the Federal Reserve Board’s crucial meeting today, with blue chips up sharply but beleaguered smaller stocks lower again.

In the bond market, yields slipped from Friday’s levels.

On Wall Street, the Dow Jones industrial average shot up 100.46 points, or 1.5%, to 6,905.25. It was the best showing in seven sessions for the blue-chip barometer, which retreated nearly 2% last week.

There were strong signs that investors were confident that any increase in short-term rates by the Fed will be limited.

For example, bank and other financial stocks--sensitive to higher rates--rallied powerfully Monday.

But analysts were disappointed that much of the buying was concentrated in the same blue-chip stocks that have led the market over the last year.

In contrast, other stock indexes finished mixed, and the Nasdaq market of mostly smaller stocks was broadly lower, hurt by another decline in tech stocks on disappointing news from Microsoft.

The Nasdaq composite index fell 11.43 points to 1,242.64.

Some analysts said the Dow’s gain was a typical late-session rally, boosted by computerized “buy” programs.

“The market had been down for several days and reached an oversold condition,” said Ricky Harrington, technical analyst at Interstate/Johnson Lane in Charlotte, N.C. “Rallies in down markets can be extremely dramatic.”

But others said investors may already be feeling confident that the Fed won’t have to tighten credit much to slow the U.S. economy to a more sustainable pace, with continued low inflation.

“Investors feel that the rate hike is already built into current prices,” said Bruce Bittles, market strategist at J.C. Bradford. “They’re just coming out and buying stocks, betting that the market is going to rally even if [the Fed] does raise rates.”

The bond market helped blue chips, as yields slipped across the board after rising in recent weeks.

The yield on the benchmark 30-year Treasury bond fell to 6.92% from Friday’s 6.96%.

But there was little joy in the Nasdaq market, where losers outnumbered winners by 25 to 15, continuing the sell-off of recent weeks.

Among Monday’s highlights:

* Microsoft fell 3 7/8 to 90 1/8 on news that the release of an updated version of the Windows 95 operating system may be delayed until after the Christmas selling season.

Other big-name tech issues were caught in Microsoft’s downdraft. Cisco Systems shed 2 1/8 to 47 1/8, Texas Instruments gave up 2 3/8 to 75, Intuit slipped 3/4 to 25 1/4, 3Com dropped 3/8 to 32 3/4 and Parametric Technology slid 1 1/4 to 47 7/8.

Part of the Dow’s early weakness came from its two tech components, but both recovered. IBM rose 4 1/4 to 136 3/4 and Hewlett-Packard gained 1/8 to 56 7/8. Intel rose 1/8 to 130 5/8.

Bucking the tech downtrend, Cabletron Systems gained 7/8 to 29 1/2 after reporting as-expected quarterly earnings.

* The Dow drew a big boost from Philip Morris, up 4 1/4 to 115 3/4, recovering part of last week’s big sell-off on worries about health-liability claims against cigarette makers.

* Among banks, Citicorp rose 1 1/4 to 116 5/8, Chase Manhattan rose 1 3/8 to 103 3/8, BankAmerica rallied 3 to 113 5/8, Banc One climbed 1 3/8 to 44 3/4 and NationsBank rose 3 to 61 5/8.

Community Bankshares rallied 8 1/2 to 33 1/4 after CFX said it will pay about $96 million for the holding company. CFX fell 3/8 to 16 7/8.

* A number of smaller companies plunged. Idexx Laboratories plummeted 20 points to 12 after the biotech firm said it expected its first-quarter earnings to fall significantly below estimates.

Medic Computer System, a developer of physician practice management systems, fell 14 7/8 to 13 1/8, and drive-in restaurant firm Sonic dropped 7 1/8 to 13 1/4. Both fell on profit warnings.

* Lehman Bros. Holdings rose 3/4 to 31 5/8 after reporting better-than-expected earnings.

Overseas, Tokyo’s Nikkei stock average fell 3.2%, Frankfurt’s DAX index rose 0.7% and London’s FTSE-100 fell 0.9%.

Market Roundup, D12