Standard & Poor’s Debuts New Stock Market Index : Investment: The SmallCap 600 will track smaller firms in hotly competitive sector.

A new index makes its debut this week in the competition to create a better measuring stick for the stock market.

Standard & Poor’s Corp., which has been in the market index business for more than 70 years, is introducing a gauge called the SmallCap 600 index, designed to track the ups and downs of the stocks of smaller companies.

In that popular sector of the marketplace, it will compete for recognition with such other indicators as the Nasdaq composite index of what used to be called over-the-counter stocks, and the Russell 2000 index.

The Russell 2000, maintained by the investment consulting firm of Frank Russell Co. in Tacoma, Wash., is now widely used by investing institutions as a standard for small growth investing.

It represents the smallest two-thirds of the stocks that make up the Russell 3000, an index that comprises 98% of the market value of issues traded in the U.S. market.

S&P; says its SmallCap 600, a somewhat narrower sample than the 2000, includes stocks “chosen for their market size, liquidity and industry group representation.”

Says Claudia Mott, an analyst at the brokerage firm of Prudential Securities, “I believe this new index will create serious competition for the Russell 2000 as a benchmark and as a vehicle for passive investment (such as index funds).”

Frank Russell Co. is touting a recent study by Value Line, the New York investment advisory firm, rating the Russell 3000 as a superior measure of the broad stock market, over such rivals as the Dow Jones industrial average and the S&P; 500-stock composite index, which has long been the recognized standard for investors in large stocks.

“The index wars are heating up,” says Roger Nyhus, a Russell spokesman.

“There’s a lot of competition out there.”

At stake for firms like S&P; and Russell is a large measure of prestige and credibility, two important commodities in the investment world.

Individual investors in stocks or mutual funds may have something riding on the outcome as well, especially if they have money committed to an index fund, either on their own or through a pension plan or other tax-deferred retirement savings program.

Since the 1970s, many billions of dollars have been invested in index funds, which are set up to duplicate the performance of a market index.

Index funds are based on the premise that the markets are “efficient,” reflecting everything that is known or suspected about the present and future, and on the corollary argument that active money managers as a group cannot consistently beat the indexes.

By minimizing the need for trading and research, index funds can operate at lower cost than most managed funds, giving them an important advantage.

Most of the first generation of index funds were based on the S&P; 500. As of Sept. 30, Lipper Analytical Services Inc. tallied 41 mutual funds, with total assets of more than $18 billion, constructed on that model.

In recent years, however, more and more index funds have been created to reflect different aspects of investing, such as small stocks or international stocks.

Numerous stock index options and futures contracts, which are used for both conservative and speculative investment purposes, also are based on stock indexes.

The Dow Jones average of 30 industrials, the oldest and best known market indicator, is not used much by professionals as a benchmark, partly because of the extremely small sample of stocks it represents.

But the Dow, with its historical continuity and familiarity to investors of all types, remains prominent in the public eye.