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Techs drive Nasdaq to record close as Dow drops

NEW YORK: Technology stocks surged on Wednesday, leading Nasdaq to a record closing high as Wall Street swapped the old stand-bys for the new high-flyers.

The blue-chip Dow Jones industrial average dropped despite a late-day swing into positive ground after Federal Reserve Chairman Alan Greenspan said monetary policy is not aimed at keeping stock prices in check.

"I think Greenspan's comments were very encouraging," said Alan Skrainka, chief market strategist at Edward Jones.

"But, all in all, investors continue to play a game of follow the leader and buy the companies that have had the strongest price momentum over the last six months," he said. "Investors are following the hot money and that hot money continues to go into technology and come out of old economy stocks."

The tech-driven Nasdaq rocketed, logging its largest one-day point gain ever. The index gained 168.21 points, or 3.84 percent, to close at a record 4,550.33, led by tech heavyweights, biotech companies and Internet names.

Technology stocks were among the most actively traded issues on both the New York Stock Exchange and the Nasdaq.

Volume was strong, with 1.88 billion shares trading hands on Nasdaq. Of that, 1.27 billion shares moved higher, compared with just 576.8 million that fell.

America Online, up 7-1/8 to 56-3/4, led the Big Board after Merrill Lynch offered Wall Street an upbeat outlook on the Internet giant's merger with Time Warner. Time Warner shares gained 7-1/4 to 81-1/16.

On the New York Stock Exchange, 979.7 million shares changed hands. Decliners outnumbered advancers by 1,756 to 1,235, however, with 46 stocks at new highs and 219 at new lows.

Computer-chip giant Intel Corp. rose 2-5/16 to 109-1/16 and Microsoft Corp. climbed 7/16 to 94-1/4.

But gains in Intel and Microsoft were not enough to hold the Dow Jones industrials above water. While the Nasdaq has climbed more than 11 percent this year, the Dow has dropped 11 percent.

On Wednesday, the blue-chip gauge lost 79.11 points, or 0.77 percent, to end at 10,225.73. Drug, industrial and consumer product stocks dragged on the 30-stock index along with interest-rate-sensitive financials.

Shares of Johnson & Johnson fell 2-1/2 to 76-1/8 and American Express lost 1-1/2 to 137-5/8. Industrial conglomerate Honeywell International fell 4.37 percent, off 2-1/16 to close at 45-3/16.

Wall Street had been riveted by the Fed chief's statements as he answered questions from the Senate Banking Committee. Market watchers were unnerved last week when Greenspan singled out the bullish stock market as a reason the economy has seen such strong demand, which could eventually lead to inflation.

But on Wednesday, the chairman offered a more conciliatory tone.

"I didn't hear a Fed chairman that was going to be raising rates significantly," said Tony Dwyer, chief market strategist at Kirlin Holdings. "I heard a Fed chairman that was looking at inflation being very moderate despite growth being very robust and being in a quandary as to what to do."

"As long as you're in that environment, you have the potential for future interest-rate hikes hanging over the head of the market. As long as that's the case, you're going to see the traditional or old economy stocks under pressure and the new economy stocks are going to surge," Dwyer said.

Analysts said Wall Street continues to expect the Fed to raise interest rates to slow the economy, but noted that Greenspan may not be looking for the stock market to drop back, only to stabilise.

"The market probably does not need to fall in order to make the Fed comfortable. What it has to do is stop rising too rapidly," said Pierre Ellis, senior economist at Primark Decision Economics.

"If the stock market stabilises instead of leaping forward, it means that the ultimate number of interest-rate increases may be smaller," he said.

The 30-year U.S. Treasury bond ended Wednesday off 15/32, pushing the yield to 6.12 percent from Tuesday's close of 6.09 percent.

Bellwether technology stocks were to thank for the broad push higher in equities. The Nasdaq 100 index of top shares rose 5.06 percent to 4,170.09.

That helped boost the widely watched Standard & Poor's 500 Index, which closed up 8.52 points, or 0.63 percent, at 1,360.69.

But the biotech and Internet sectors stole the show again as Wall Street shifted cash into Nasdaq's best-performing sectors of the year. The Nasdaq biotech index jumped 5.05 percent to 1,418.92, while the Dow Jones Internet index gained 7.13 percent to a record 436.72.

"It's more of the same. The money continues to flow into the momentum type of issues, into the Internets and biotech indexes. The money is still focused on the momentum shares that have done very well over the last few months," Dwyer said.-Reuters