FINANCIAL MARKETS : STOCKS : Dow Up 19.55, Falls Just Short of 3,000 Mark

Good news on corporate earnings kept the rallying stock market bubbling Monday, although after a late retreat the Dow Jones industrial index closed below the historic 3,000 mark by the narrowest of margins.

The Dow ended the session at 2,999.75, up 19.55, after spending much of the afternoon above 3,000. But the Standard & Poor’s 500-stock index set an all-time high by rising 1.62 to 368.94, and the New York Stock Exchange composite index advanced 0.80 to 201.13, also a record.

“A lot of money managers still just can’t believe this rally is happening,” said William LeFevre, market strategist with the Advest Inc. brokerage in New York.

International Business Machines Corp. gave the market a shove in the right direction by releasing a second-quarter earnings report just before the opening. The report, which pushed IBM up 1 3/8 to 122 3/8 and helped lift other technology stocks, showed a 5.2% rise in quarterly profit and earnings of $2.45 per share that were slightly better than Wall Street’s expectations.

The day marked the third-consecutive record high for the Dow, and the second-consecutive day in which the closely watched index flirted with 3,000 but closed slightly below it. The day’s volume was 149.43 million shares, compared to 215.60 million Friday, which marked the first time the Dow had crossed 3,000 in intraday trading.

Advancing shares led decliners by 868 to 678 on the New York Stock Exchange.

The Dow has risen about 9% since Dec. 31, when it closed at 2,753.20. It’s up 72.5% since its low of 1,738.74 on Oct. 19, 1987.

Much of the price gains have been in blue chip stocks, but LeFevre contended that even they are not priced high by historical standards. The 30 Dow Jones stocks are trading at an average of 14.6 times earnings, compared to a historical average of 14.5 times earnings.

The Dow stocks traded at an average of 21.6 times earnings during the market’s pre-crash high in August, 1987, according to LeFevre.

And while the economy’s weakness clearly has made some analysts skeptical about the run-up, others saw reason for cheer.

Eugene Peroni, market strategist at Janney Montgomery Scott in Philadelphia, said he believes that investors are focusing not on short-term earnings but on prospects six months out, when they believe that interest rates and earnings may be more favorable. “The market’s keyed to a strong potential down the road,” he said.

Over the next few weeks, Peroni believes, the Dow may oscillate between about 3,250 and 2,850. “The risk-reward balance is in favor of the bulls,” he said.

Edward Nicoski, strategist at Piper, Jaffray & Hopwood Inc. in Minneapolis, said technology stocks led the market’s advance Monday in the same way that energy issues led the move last Thursday and Friday. “I think the market is going to see more of this rotating leadership among sectors,” he said.

Investors are still focused “quite a bit” on last week’s comments by Federal Reserve Board Chairman Alan Greenspan that the Fed needed to ease credit to head off a credit crunch. “I don’t think (investors) needed proof the federal funds rate would fall by some specified amount within a month; they simply wanted reassurance that the Fed recognizes the seriousness of the situation,” he said.

The advance of technology stocks was also helped by unexpectedly good news from NCR, which reported that quarterly profit was up 5% from a year ago. NCR stock gained 3 7/8 to 68.

Other market highlights:

* Big gainers among Southland technology stocks included Micropolis, up 1-1/16 to 9. The Chatsworth disk drive maker reported quarterly earnings of 20 cents a share, contrasted with a loss a year ago. Computer maker Teradata also surged, up 2 1/4 to 28 1/2. But Applied Magnetics fell 1 1/2 to 11 1/2 on apparently disappointing earnings.

* Some recently battered stocks gained, including HomeFed, up 1 7/8 to 19 3/8, and Mattel, up 1 7/8 to 22 3/4.

* Good profit reports sent J. P. Morgan up 2 1/8 to 37 7/8 and NCNB up 1 3/4 to 36 1/2. But other big banks were weak on continuing worries about their prospects. Chase lost 1/2 to 20 3/4, and Manufacturers Hanover fell 7/8 to 30 7/8.

* Among defense contractors, Teledyne fell 1 1/4 to 21 1/8, a new low. McDonnell Douglas tumbled 2 3/8 to 42 1/2 on news of more job cuts.

Tokyo stock prices closed higher on buying spurred by overall optimism in the absence of any major negative factors. The key 225-share Nikkei index rose 377.36 to close at 33,021.73.

Share prices also finished higher on the London Stock Exchange, as a drop in British retail sales figures led to optimism about chances for an interest rate cut. The Financial Times 100-share index rose 24.3 to 2,406.5.

In Frankfurt, West Germany, shares ended a volatile session narrowly mixed. The 30-share DAX index edged up 0.53 to 1,931.86.