FINANCIAL MARKETS : Weak Factory Orders Send Dow Soaring 70.90 : Markets: Investors see the economy slowing and less chance of the Federal Reserve Board raising interest rates again soon.

Stock prices zoomed Wednesday as new conviction that the U.S. economy is slowing brought sidelined buyers rushing into the market.

The Dow Jones industrial average soared 70.90 points, or 1.9%, to 3,846.73, the highest close for the blue chip index since March 23 and the biggest one-day rise since an 82.06-point gain April 5.

The surprise rally, in heavy trading, was sparked by the government’s report that orders for durable goods slumped 4.2% in July. The report suggested that the Federal Reserve Board’s efforts to tighten credit this year are finally producing the desired effect: a weaker economy.

Though slower growth could hurt corporate profits in the near term, Wall Street bulls assume that the economic expansion may last longer if it’s at a more moderate pace and with less upward pressure on interest rates.

While some economists said the durable goods numbers weren’t as bad as they appeared, bond yields tumbled Wednesday, further encouraging stock buyers. The bellwether 30-year Treasury bond yield dropped to 7.45% from 7.54% on Tuesday.

“Summer’s ending and it looks like we’ve got an attempt to have a real rally,” said Alan Ackerman, analyst at investment firm Reich & Co. in New York.

Traders said the Dow’s two-day gain Tuesday and Wednesday of nearly 100 points has roused many investors from traditional August vacations, forcing them to make decisions about putting new money to work or taking some off the table. “Some shocked people were making calls” Wednesday to brokers, Ackerman said.

Gail Dudack, analyst at brokerage S.G. Warburg & Co. in New York, said the market has been showing strong signs in recent weeks that a rally was coming. She noted that the Nasdaq composite index of mostly smaller stocks has been advancing briskly since Aug. 5, even as the blue chip Dow has drifted in a narrow range.

More important, Dudack said, individual and institutional investors have been building up cash reserves since spring, waiting for concrete evidence that the economy is slowing enough to put at least a temporary lid on interest rates.

“People have been waiting for a trend to evolve,” Dudack said. With the durable goods report signaling economic weakness, “this is a trend evolving,” she said.

She believes the Dow could rise as high as 4,200 if interest rates stay down and sidelined investors jump back into stocks. The Dow’s all-time high was 3,978.36, reached Jan. 31--just before the Fed tightened credit for the first time in five years.

Ackerman noted that the market could benefit near-term from high “short” positions: Bearish traders who have sold borrowed stock, betting on further price declines, will be compelled to close out their positions by buying shares on the open market if the rally continues.

Indeed, on Wednesday the Nasdaq Stock Market said short-interest totaled a record 849.3 million shares as of Aug. 15, up 1.7% from a month earlier.

But some pros warned that this rally could be short-lived, like others since spring. “I think it’s a rally in a neutral market,” said Jerry Appel, analyst at Systems & Forecasts newsletter in Great Neck, N.Y.

He noted that Wednesday’s advance wasn’t as broad as the Dow’s gain would suggest. Winners topped losers by only 14 to 8 on the Big Board, and most stock indexes rose far less than the Dow.

Also, 20 points of the Dow’s gain came in the final minutes, on computer-driven program trades.

Appel doubts the Dow will climb much past its record, if that high. “Interest rate concerns are going to be with us for a while,” he said.

Among Wednesday’s highlights:

* Industrial stocks led the advance, betting on an extended economic expansion. Alcoa leaped 2 1/8 to 79 1/2, International Paper surged 3 1/2 to 74 7/8, 3M jumped 1 3/8 to 56 3/8, GM rose 2 1/4 to 50 7/8 and Caterpillar gained 2 3/4 to 114 3/8.

* Some retailers were also strong. Nordstrom rose 1 to 46 1/2, Sears gained 1 to 47 1/4, Dillard added 3/4 to 27 7/8 and Home Depot was up 1/2 to 45 1/2.

* On the downside, profit taking clipped many tech stocks. IBM was off 1/4 to 67 3/8, Texas Instruments fell 2 1/4 to 78 3/4 and Micron Technology lost 1 3/8 to 40 7/8.

* Biotech leader Amgen slumped 2 3/4 to 53 1/4 after two analysts downgraded the stock, citing its recent advance.

In foreign markets, Mexico City’s Bolsa index resumed its rally, climbing 42.69 points to 2,798.22.

In London, the FTSE-100 surged 30.1 points to 3,205.2, while Frankfurt’s DAX index rebounded 18.50 points to 2,126.37. Tokyo’s Nikkei-225 rose 130.82 points to 20,511.60.

* DURABLE GOODS

Big-ticket factory orders take their steepest dive in 2 1/2 years. D2

Durable Goods

New orders in billions of dollars, seasonally adjusted:

July 1994: 144.9

Source: Commerce Department