Dow Dips, Small Caps Rise; Bond Yields Climb Further

Stocks put in a mixed performance Tuesday, while concern about the pace of economic growth drove bond prices lower for the third session in a row.

The dollar rose to an eight-year high against the German mark, and palladium prices surged amid growing supply worries.

The Dow Jones industrial average fell 10.91 points to close at 8,187.54. Broader indexes were generally higher, however, and the technology-heavy Nasdaq composite index posted another record. The Nasdaq rose 16.08 points, or 1%, to 1,621.53.

“One week they want the banks, the next week they want the pharmaceuticals. Now it’s technology, which tends to have a lot of fans,” said Scott Bleier, chief investment strategist at Prime Charter.

The Russell 2,000 index of smaller companies closed at a new high for the second session in a row, underscoring concerns that last month’s record-setting rally has left the blue-chip sector extremely overpriced.

While analysts called it encouraging that the Dow has surrendered just 67 points in the four-session slump that followed last Wednesday’s record close of 8,254.89, some expressed concern over the movement into lesser-known stocks.

“The tertiary stocks, those $10 and under, have come to life,” said Ricky Harrington, technical analyst at Interstate/Johnson Lane in Charlotte, N.C.

“That can be symptomatic of tail-end speculation. Sometimes you see that just before you get a correction,” he said, referring to the waves of profit-taking that often follow a big market rally.

In the broader market, advancing issues outnumbered decliners by a 9-7 margin on the New York Stock Exchange in heavy trading. The Standard & Poor’s 500-stock list rose 2.07 points to 952.37, and the NYSE composite index rose 1.03 points to 492.96, leaving both measures within 2 points of records.

The session highlighted a recent trend in which increasingly impatient investors move between various stock groups at the first sign of a shift in market psychology.

A main reason blue chips have hit a wall is a run-up in interest rates after recent evidence suggesting economic growth may be accelerating. Rates edged higher for the third straight session, weighing on the performance of financial stocks.

The price of the benchmark 30-year U.S. Treasury bond fell, boosting its yield to 6.49% from 6.47% on Monday.

“One disappointing area today was financial services, which continues to trade in lock-step with the yield curve,” said Phil Orlando, chief investment officer at Value Line Asset Management.

Among Tuesday’s highlights:

* The Dow was dragged down by Procter & Gamble, the world’s largest maker of household products and the highest-priced stock in the Dow. It fell $1.25 to $148.

* The technology rally was led by semiconductor stocks. In NYSE trading, Micron Technology rose $4.69 to $56.25 as the most active issue, and Texas Instruments rose $4.31 to $129. Intel rose $2.94 to $99.69 to lead the Nasdaq advance.

In currency trading, the dollar rose against the German mark after the Bundesbank defied market expectations and held official interest rates steady.

The dollar jumped to 1.8800 marks from 1.8660 late Monday, bringing its rise against the mark this year to 22%, with a 7.5% rise since June 1.

The dollar also rose to 119.25 Japanese yen from 118.35 in New York and to 1.5350 Swiss francs from 1.5250.

Elsewhere, supply worries drove palladium prices higher again Tuesday. At the New York Mercantile Exchange, palladium for September delivery rose the $12-an-ounce daily limit to close at $227.60.

Overseas, Tokyo’s Nikkei stock average fell 0.8%, Frankfurt’s DAX index rose 0.1%, and London’s FTSE-100 rose 1.3%.