STOCKS : Dow Gains 7.38 as Blue Chips Soar, Then Fall

Blue chip stocks rose Tuesday to flirt with record highs, but later slipped back to end with just modest gains.

The late afternoon profit taking failed to dampen a rally in smaller, secondary issues, however, which closed at a record high.

The Dow Jones average of 30 industrial stocks rose 7.38 points to 3,008.72. Earlier in the session, the index of 30 leading blue chips had climbed within two points of its closing record of 3,035.33, reached June 3.

Advancing issues outnumbered declining ones by about 7 to 5 on the New York Stock Exchange on volume of 212.39 million shares as of 4 p.m., up sharply from 143.61 million at the same point Monday. It was the heaviest since 232 million shares changed hands May 31.

But the NASDAQ over-the-counter index of most smaller stocks rose 4.40 points, or nearly 1%, to end at 514.40. The prior record of 511.31 was set April 17.

Computer-driven sell programs sapped the day’s rally and kept the Standard & Poor’s index of 500 stocks and the NYSE index of all listed stocks from hitting new closing highs, analysts said.

“We saw some profit taking,” said Robert Walberg, an analyst at MMS International. Investors may have chosen to cash in on gains when the Dow failed to break above its all-time closing high, he added.

Firm bond prices kept downward pressure on market interest rates and helped stocks, analysts said.

Among the other market highlights:

* Security Pacific rose 3 1/2 to 35 5/8 and was the most-active Big Board issue. BankAmerica rose 3 3/8 to 43 3/8. Several analysts recommended purchase of both banks following Monday’s merger announcement.

* Other banks also rose, with pending merger partners C&S;/Sovran adding 1 1/2 to 30 1/4 and NCNB rising 1 7/8 to 38 5/8. Bankers Trust added 2 1/8 to 60 1/2, Wells Fargo gained 1 to 76 1/2, First Interstate rose 1 1/4 to 35 1/8, and Barnett Banks added 1 5/8 to 35 3/4.

* Coventry dropped 7 1/4 to 10 after the health maintenance organization posted sharply lower second-quarter profit. Dean Witter Reynolds cut its rating on the stock.

* Nordstrom jumped 3 5/8 to 51 5/8 after it reported better-than-expected second-quarter profit. Prudential Securities raised its rating on the retailer.

* Failure Group fell 3 1/2 to 10 1/2 after the management consultant said it expects pressure on earnings.

In foreign trading, stock prices fell in Tokyo, but rose in Frankfurt and London.

Tokyo’s key 225-share Nikkei average closed 113.67 points lower at 22,872.00, with 180 million shares traded.

In Germany, the DAX 30-share average ended 18.66 points higher at 1,644.72 and London’s Financial Times 100-share average added 15.5 points to close at 2,584.9.

Credit

Bond prices seesawed, falling first on news of unexpected strength in the economy, then rallying on heavy purchases by large institutional investors who saw bargains in buying long-term issues.

“It was a fairly active, fairly wild day,” said William Veronda, a fixed-income strategist at Financial Funds, a Denver-based money management firm.

The Treasury’s key 30-year bond ended 17/32 point or about $5.31 higher per $1,000 in face amount. Its yield, which falls when the price rises, decreased to 8.18% from 8.23% Monday.

The funds rate was quoted at 5.5% late Tuesday, down from 5.563% late Monday.

Currency

The dollar was mixed against major currencies in another day of quiet trading as the market waited to see if German interest rates are headed up or down.

The dollar often moves in the same direction as interest rates, and the retail sales report gave little hope that the Federal Reserve will nudge rates downward to spur the economy.

But trading was very light, said Lorenzo Troni, vice president of foreign exchange with PaineWebber International Ltd. in New York.

“We’re paralyzed awaiting the big news Thursday,” he said. The Bundesbank’s council is expected to review German interest rates at its meeting Thursday.

In New York, the dollar ended at 1.733 German marks, compared to 1.725 Monday. Against the Japanese yen, it closed at 136.45, off slightly from 136.55 Monday.

Commodities

Cotton futures prices crumbled Tuesday after the government forecast a 14% jump in cotton production this year, double the increase the market was expecting.

On other commodity markets, soybeans sank but grain futures were mixed; cattle futures rebounded while pork futures fell; oil futures were mostly lower; and precious metals retreated.

Cotton futures fell the permitted daily limit of 2 cents a pound across the board on the New York Cotton Exchange, with the contract for delivery in October at 63.80 cents a pound.

Light sweet crude oil for delivery in September settled at $21.58 per barrel, down 11 cents, on the New York Mercantile Exchange. Unleaded gasoline for delivery in September settled at 68.23 cents a gallon, down 1.46 cents.

Precious metals fell modestly in light, quiet trading on New York’s Commodity Exchange.

August gold settled $1.20 lower at $356.30 an ounce; September silver settled at $3.925 an ounce, down 2.8 cents.