FINANCIAL MARKETS : Tech Stocks Advance Again, but Dow Stumbles

Technology stocks continued to rally Wednesday off healthy earnings reports, but the Dow industrial average slumped as sellers hit some key stocks.

The Nasdaq composite index rose 9.93 points to 1,045.37, reflecting tech stocks’ gains.

The Dow index, meanwhile, fell 18.42 points to 4,777.52.

For a second consecutive session, the market’s breadth was unexciting despite tech shares’ advance and a fresh rally in bank stocks. Winners edged losers by just 1,174 to 1,089 on the New York Stock Exchange. Trading was heavy at 411 million shares.

The session brought at least one record high among major indexes. The Standard & Poor’s 500 index edged up 0.66 point to a record 587.44.

Technology stocks were guided higher by Microsoft, which soared 4 1/2 to 95 5/8 after rising 4 3/8 on Tuesday, when the company reported a 58% jump in first-quarter profit.

Microsoft’s earnings, plus those of Intel released late Monday and Compaq on Tuesday, signaled to investors they could still count on strong quarterly results from the technology sector, despite some jitters over earnings a week ago.

“People had been looking for some downside surprises” in technology earnings “that haven’t come to fruition, with the possible exception of IBM,” said Arthur Hogan, head of equity trading at Dean Witter Reynolds.

“As long as the technology sector acts this well, the market will stay strong.” But, he cautioned, “we’re still trading at pretty lofty levels.”

As for the broad market’s lackluster session, some analysts pointed to weakness in the bond market.

The yield on the benchmark 30-year Treasury bond rose to 6.33% from 6.28% on Tuesday.

The Commerce Department said the nation’s trade deficit narrowed to $8.82 billion in August. That might have been constructive for bonds, but the trade deficit is running at an annual rate of $183 billion, far above last year’s $166 billion.

A wider deficit is worrisome to bond investors because it suggests that the economy could be growing at a potentially inflationary rate, analysts said.

Among Wednesday’s highlights:

* In the tech sector, Compaq shares climbed 2 3/4 to 54 1/8 after the computer maker reported a 22% rise in third-quarter earnings. Intel added 2 1/4 to 67 3/4, Sun Microsystems jumped 4 3/4 to 72 5/8 and Dell rose 2 1/4 to 92.

* Apple Computer shares rose 3/4 to 37 3/8 in Nasdaq trading, as investors expected the company to release strong earnings results after the market closed. But after the close of trading, Apple said its fourth-quarter net income dropped to 48 cents per share from 95 cents, much lower than analysts’ estimates.

* One notable exception to the high-tech euphoria was IBM, whose shares fell 1/2 to 96 3/8 on the Big Board after the company reported disappointing earnings Tuesday.

* Investors sold some economically sensitive stocks to make room for technology shares. The Dow industrials were led lower by cyclical stocks Caterpillar, which fell 2 5/8 to 51 1/2; General Motors, down 1 1/8 to 45 3/8; Boeing, down 1 to 65 5/8, and Alcoa, off 1 to 50 3/4.

Caterpillar said Tuesday that its third-quarter profit fell 13% from last year, weighed down by the weaker dollar and higher sales discounts.

* Shares of W.R. Grace & Co. dropped 8 1/2 to $55 5/8 on the NYSE after the chemical company said records of its kidney dialysis subsidiary had been subpoenaed as part of a federal investigation.

The subpoenas involve an investigation of “possible violations of federal laws relating to health care payments and reimbursements” at its National Medical Care unit.

* First Interstate Bancorp’s shares soared 34 1/4 to 140 1/4 on the NYSE after Wells Fargo announced a $10.9-billion hostile takeover bid that would create the nation’s seventh-largest banking business. Wells Fargo’s shares climbed 15 3/8 to $229 on the NYSE.

Banking shares were mostly higher, as “bank earnings continue to be very strong,” said Larry Rice, chief investment officer at Josephthal, Lyon & Ross., “although one questions whether you’re approaching the end of the bank earnings cycle.”

One exception was Citicorp, whose shares fell 3 5/8 to 69 1/8 after the banking giant Tuesday reported a 2% drop in net income. Citicorp said the decline occurred because last year’s earnings were inflated by tax benefits. Before taxes, profit rose 10%.

In currency trading, the dollar ended at 100.87 Japanese yen in late New York trading, up from 100.45 yen Tuesday.

Speculation that the world’s leading central banks might launch a dollar-buying spree in the wake of the trade report helped lift the dollar to its highs, traders said.

The last three times central banks teamed up to buy dollars, they did so when the currency was already rallying. In their absence Wednesday, the dollar’s rally quickly ran out of steam.

In commodities trading, wheat prices soared to 15-year highs as worried importers like Egypt and Tunisia piled into the market to secure scarce supplies, traders said.

At the Chicago Board of Trade, December wheat closed 8.25 cents higher at $4.9975 a bushel after setting a new contract high at $5.01, the first time the harvest-month wheat contract has traded above $5 since October, 1980.

That 1980 high was $5.445 a bushel. The all-time high $6.45 a bushel was set in February, 1974.

In overseas trading, London’s FTSE-100 rose 30.8 points to a record closing of 3,593.0, beating its previous high of 3,570.8 set Sept. 13. In Tokyo, the 225-share Nikkei average ended down 20.63 points at 17,895.97.

In Mexico, the key Bolsa index closed up 27.25 points at 2,332.44.

Market Roundup, D8