MARKETS : Small Stocks Set Record in Another Light Trading Day

Blue-chip stocks halted a four-session losing streak Wednesday as depressed prices generated some buying interest, but the smaller-company sector stole the show with a record finish.

Meanwhile, the dollar edged higher and bonds were little changed.

The Dow Jones industrial average rose 5.11 points to 7,787.33 after losing nearly 240 points in the four sessions through Tuesday.

Broader stock measures also rebounded as bonds recovered from a slide that temporarily sent interest rates toward their highest level since early summer.

The early weakness in blue-chip shares threatened to overshadow another strong day for smaller-company stocks, which were higher throughout the session.

The Russell 2,000 index of smaller companies rose for the fourth straight session, setting a record close for the first time in three weeks.

“It’s like we’ve reached a moment of truth where if you want to find value, you have to go to the Russell 2,000 type of stocks, which have not kept pace with the Dow,” said Russ Labrasca, senior vice president at Principal Financial Securities of Dallas.

The Nasdaq composite index, laden with technology issues, rose 4.24 points to 1,595.54. The Standard & Poor’s 500-stock list rose 0.68 point to 913.70, and the New York Stock Exchange composite index rose 0.69 point to 476.05.

U.S. bonds were little changed as the Treasury met with tepid demand for $11.5 billion of five-year notes and investors fretted that a report today on second-quarter growth may point to faster inflation.

“I don’t see a lot of news that’s convincing me to be a buyer,” said Gerald Thunelius, who manages $1.5 billion of bonds at Dreyfus Corp. He passed on the Treasury’s five-year notes.

The yield on the benchmark 30-year bond rose to 6.65% from 6.64% on Tuesday.

The government sold the five-year notes at an average yield of 6.253%, above the 6.249% forecast by a survey of bond traders.

Demand for the securities was below average based on the bid-to-cover ratio, or the dollar amount of bids received compared with debt sold. The ratio of 2.33 at Wednesday’s sale was below the average of 2.65 at the previous 10 auctions.

Some traders had predicted the sale would meet with strong demand, after the government’s successful sale of $15.5 billion of two-year notes Tuesday.

The Dow had spent most of the day limping downhill, drifting as low as 7,700 before late buy programs sparked a turnaround.

“We had a mild bounce from the support level of 7,700. But nothing has really changed--we’re still working through this well-deserved consolidation,” said Susan Stern, senior technical analyst at Smith Barney.

The rally came in the last hour of trading, abruptly reversing the market’s decline and lifting blue chips out of their quagmire.

Analysts downplayed the market’s swings because so many Wall Street traders are on vacation this week, accounting for the relatively light volume of trading at the NYSE, where advancing issues outnumbered decliners by an 11-8 margin.

Among Wednesday’s highlights:

* Leading the Dow’s rebound were Eastman Kodak, up $1.94 to $67.50; Chevron, up $1.69 to $79.94; Exxon, up $1.50 to $63.25; and Caterpillar, up $1.44 to $60.06.

* Dow decliners included Coca-Cola, off 38 cents to $58.63 on news from the Atlanta-based beverage giant of a new promotion in which it will send 50 Coke drinkers to the Super Bowl in January. Procter & Gamble fell 75 cents to $136.25.

* Drug issues gained. Merck advanced $1.25 to $92.88 after having fallen 13% in the last six weeks. Pfizer rose $1.50 to $55.38, Schering-Plough gained $1 to $48.19 and Warner-Lambert rose 63 cents to $126.63.

In currency trading, the dollar rose after a Japanese government official raised concerns about his country’s economic recovery, and on signs that German interest rates are not likely to rise soon.

The dollar edged up to 118.88 yen in New York from 118.18 yen Tuesday. It rose to 1.8045 German marks from 1.7975.

In commodities markets, crude oil for October delivery rose 45 cents to $19.73 a barrel at the New York Mercantile Exchange. Refined products also rose, with September gasoline adding 2.59 cents to 66.40 cents a gallon.

Coffee prices rose sharply as the developing El Nino weather pattern was seen as a growing threat to world crops. Arabica coffee for December delivery rose 5.85 cents to 172.25 cents a pound at New York’s Coffee Sugar and Cocoa Exchange.

Overseas, Tokyo’s Nikkei stock average fell 2.0%, Frankfurt’s DAX index rose 0.9% and London’s FTSE-100 rose 0.4%.

*

Market Roundup, D5