Dow Breaks 3,900 Barrier; Bond Yields Up

Market Overview * The Dow industrials punched through 3,900 on Friday, ending above that mark for the first time in a rally fueled by options trading. The broad market was mixed.

* Bond yields inched up, while gold tumbled for a second day.

Stocks

The Dow, which meandered in a narrow range for much of the day, soared in the final minutes to close up 22.52 points at 3,914.48, a new high and the first close above 3,900.

But the blue-chip Dow stocks were much more buoyant than the broad market: Losers edged winners on the New York Stock Exchange, and major market indexes such as the NYSE composite and the Standard & Poor’s 500 were slightly lower.

The Nasdaq market of smaller stocks, however, rose with the Dow: Nasdaq winners beat losers 14 to 11, and the market index hit a record 794.28, up 1.25 points.

Still, many Wall Streeters were unimpressed with stocks’ advance.

“It’s really a no-fun kind of a rally. The Dow is making new highs but the rest of the market is so-so,” said Don Hays, strategist at Wheat First-Butcher & Singer.

Analysts noted that the Dow’s late surge Friday was tied in part to a flood of buy orders associated with the monthly expiration of options on individual stocks and on stock indexes. That kind of trading is technical in nature, rather than driven by stock fundamentals.

NYSE volume, swelled by options trades, hit 344 million shares.

Even so, some analysts said the Dow, which gained 47.28 points for the week, may be a more accurate gauge of market sentiment than its critics will allow.

“The market has finished on a very strong note in recent sessions, and that underscores a high level of investor confidence,” said Eugene Peroni, analyst at Janney Montgomery Scott in Philadelphia.

Among Friday’s highlights:

* Strong earnings reports helped boost industrial stocks, led by Caterpillar, which surged 4 5/8 to a record 98 5/8 on its fourth-quarter report. Other industrial winners included Bethlehem Steel, up 1 1/8 to 23 5/8; GM, up 3/4 to 60 7/8, and USX-U.S. Steel, up 1 1/2 to 45.

* Apple Computer helped pace the Nasdaq market rally after reporting earnings ahead of expectations. It shot up 3 1/2 to 33 3/8. Also rising among tech issues were BMC Software, up 3 1/4 to 63, and Compaq, up 2 5/8 to 82 1/2.

* Earnings disappointments clipped Computer Associates, down 3 to 38; Pairgain Technologies, down 2 to 11 1/2, and discount retailer Mac Frugal’s Bargains, down 3 1/8 to 14 3/8. Mac Frugal’s blamed weak Christmas sales and the earthquake’s effects.

* Some Southland S&L; shares dipped on worries about possible new loan write-offs tied to the earthquake. Great Western fell 1 1/8 to 18 5/8, H.F. Ahmanson sank 3/4 to 18 5/8 and FirstFed eased 1/2 to 15 1/8.

* RHI Entertainment, a major producer of TV movies, surged 2 3/8 to 29 on rumors it will be acquired by media mogul Ted Turner.

In overseas markets, London’s FTSE-100 index gained 14.2 points to a record 3,484.2, while Frankfurt’s DAX index tumbled 40.59 points to 2,075.61.

In Tokyo, the Nikkei added 123.51 points to 19,307.43.

In Mexico City, the Bolsa rose 27.11 points to 2,683.18, just shy of the record 2,684.17 set Jan. 6.

Other Markets

Bond yields were slightly higher on fears that Japanese investors could dump U.S. bonds on Monday to raise cash, if Tokyo stocks plummet. In a surprise, the Japanese government’s political reform bill was defeated in the upper house of Parliament late Friday.

The yield on the Treasury’s 30-year bond closed at 6.28%, up from 6.27% on Thursday.

Meanwhile, gold futures plunged $6.20 to $381.70 an ounce on New York’s Comex, after Thursday’s $4.80-an-ounce slide, as profit takers swarmed. Rumors of large gold supplies ready to be dumped on the market pulled prices down.

Silver also slumped, losing 15.3 cents to $5.12 an ounce.

Market Roundup, D4