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Blue-chips tumble, Nasdaq hits record

NEW YORK: US blue-chips dropped on Monday as bond yields soared to two year highs, spurred by fears of a possible hike in interest rates and exacerbated by comments from an influential Morgan Stanley Dean Witter strategist.

The tech-driven Nasdaq recorded its largest single day point swing, but was buoyed by Internet stocks to end the day at a fresh closing high. The composite index logged its 25th most volatile day with a 5 percent change in value, Nasdaq officials said.

The Dow Jones industrial average plunged 139.61 points, or 1.21 percent, to 11,357.51 with weakness in interest rate-sensitive financial stocks.

The broad Standard & Poor's 500 index lost 14.08 points, or 0.96 percent, at 1,455.17. The index hit a new intraday high of 1,478.00.

The benchmark 30-year US Treasury bond fell 1-24/32, pushing its yield to 6.62 percent, its highest level since September 1997.

Meanwhile, the Nasdaq composite index rebounded 61.84 points, or 1.52 percent, to a record 4,131.15. The index jumped more than 3 percent shortly after the open to a new intraday high of 4,192.19 then dipped 80 points by late morning.

Monday started with all major stock indices at record highs, glee that the Y2K bug didn't bite and market players ready to take profits that were delayed into 2000 for tax purposes.

But within an hour of the open, the market turned upside-down on new data showing continued economic strength, a surging benchmark 30-year Treasury bond yield and a bearish note from Morgan Stanley Dean Witter's US investment strategist, Byron Wien.

"The thought was there would be a strong desire to take profits on this day, and while there is profit taking going on, the desire to own Internet stocks continues unabated," said Scott Bleier, chief investment strategist at Prime Charter Ltd.

"The bottom line is the real world economy and market keeps getting cheaper and cheaper and the virtual world economy keeps getting more expensive," he said.

Banks, telecommunications, oil, transportation and retail stocks were all down.

Breadth was solidly negative with declining issues trampling advancers 2,140 to 1,079 with more than 927.1 million shares traded on the New York Stock Exchange. There were 113 stocks at new highs and 142 at new lows.

On Nasdaq, there were 2,202 stocks that fell versus 2,099 that rose, on volume of 1.51 billion shares. Still, there were 265 stocks at fresh highs compared with 79 at new lows.

In terms of point swings, Monday marked Nasdaq's most volatile day ever. But on a percentage basis, which Nasdaq officials note is more relevant given the index's advance through 4,000, Monday was the 25th most volatile day since 1978 when officials started keeping a tab on this data.

A combination of economic data and comments from Wall Street analysts spooked the bond market, which in turn sent shivers through the non-tech stock world.

The note from Morgan Stanley's Wien hit the market. He predicted the Federal Reserve would raise interest rates by a full point in 2000 and begin monetary tightening in the spring. That, he said, will spark a stock market slide and a 25 percent dip in the S&P 500.

"I am sure his statement had something to do with it (the sharp market reversal), probably some of the talk about the rates going up 100 basis points," a trader at Jefferies Group said.

The market expects interest rates to be boosted by 25 basis points at both its February and March meetings, according to fed funds futures contract, a gauge of bond market expectations for interest rates. But market players see a 50 percent chance that the Fed will hike rates all in one shot by half a percent in February.

On top of that, the National Association of Purchasing Management's manufacturing activity index for December was 55.5 versus an expected 56.1 percent according to a Reuters poll. In November, the measure was at 56.2. A figure above 50 indicates the US manufacturing sector is expanding.

The prices-paid portion of the index, a carefully monitored gauge of inflation, rose to 65.7 from 65.3 in November.

"NAPM showed that prices-paid were rising, and the economy is growing at strong pace with a potential for problems down the road," said Larry Rice, the chief investment officer at Josephthal Lyon & Ross. MONDAY'S MOVERS

Interest rate-sensitive financial stocks slumped Monday with Dow components American Express Co. off 9 to 157-1/4, J.P. Morgan & Co Inc. down 5-3/16 to 121-7/16 and CitiGroup Inc. down 2-11/16 to 52-7/8.

General Electric Co. also lost 4-3/4 to 150.

On the up side, high-flier Qualcomm Inc. was again the most active stock on Nasdaq, adding to its stellar gains of last week triggered by an analyst's bullish statements and effective $250 price target for the stock. It closed up 3-3/16 at 179-5/16 after hitting a new high of 200.

Internet stocks flew higher, helping pull the Nasdaq out of negative territory. TheStreet.com's Internet index soared 63.79 points, or 5.53 percent, to a new high of 1,218.24 while the Dow Jones Internet index rose 32.46 points, or 8.08 percent, to 434.22, also a high.

Yahoo! Inc. led the sector's charge, up 42-5/16 to 475, striking an intraday high of 475-7/8. CMGI Inc. also soared, closing up 49-9/16 to 326-7/16.

Merrill Lynch analyst Henry Blodget said he remains optimistic on leading Internet companies for 2000.

Among the companies expected to perform well in 2000 are America Online Inc., Yahoo!, Amazon.com Inc., CMGI, Doubleclick Inc., Homestore.com Inc., Internet Capital Group Inc., Exodus Communications Inc., and Infospace.com Inc., Merrill said.

Online retail giant Amazon jumped 13-1/4 to 89-3/8 and Internet auction house eBay Inc. climbed 16-1/16 to 141-1/4. Media Metrix, which monitors Web traffic, said Amazon was the most visited shopping site for the holiday season followed by eBay.-Reuters