FINANCIAL MARKETS : Nasdaq Has Record Close; Dow Slips : Markets: Strength of biotech stocks fuels rally; gold prices continue to rise, hitting six-week high.

Market Overview

* The Nasdaq market climbed into record territory Tuesday, boosted by a shift from economically sensitive blue-chip stocks, which ended flat.

* Gold futures prices leaped to their highest level in six weeks as investment funds, encouraged by recent gains, returned to the market in droves.

* Long-term interest rates remained steady ahead of monthly inflation figures due out later this week.

Stocks

Analysts said the divergence between the Dow Jones index and the Nasdaq composite was a sign that investors view the smaller companies as more likely to show profit growth in the sluggish economy.

The Nasdaq gains are “the story of the market searching for growth and the market looking for smaller names and companies that can grow,” said David Shulman, U.S. equity strategist at Salomon Bros. The Nasdaq composite rose 4.81 to 772.46, eclipsing its previous record of 767.65 set on Monday.

The Dow Jones industrial average fell 0.28 point to 3,593.13 on Big Board volume of 263.97 million shares, up from Monday’s 183.19 million. Advancing issues outnumbered declines by about 8 to 7 on the New York Stock Exchange.

Analysts said the continued strength in technology shares, a major part of the Nasdaq market, was reinforced by an emerging perception that lagging biotech stocks may be in favor again.

“It is an area I would say people are starting to put money into,” said Bobby O’Toole of Lehman Bros. He said that with many sectors getting “a little toppy,” investors are looking at recent depressed sectors such as biotechnology.

The jump in biotech stocks was fueled by Centocor, which said its Panorex drug was found to have a potential use in treating rectal cancer. It gained 3 to 14 1/4.

It was an earnings report from a Big Board stock, Motorola, that helped spark the technology rally.

Motorola soared 5 to 103 1/2 after reporting third-quarter profits of $254 million, versus earnings of $127 million, beating Wall Street’s estimates.

Among the market highlights:

* Computer networking company Wellfleet Communications ended up 6 1/8 to 53 1/4 after also reporting strong quarterly earnings.

* Other high-tech stocks posting gains were Cisco Systems, up 4 7/8 to 50 7/8 and Chipcom, up 2 3/8 to 50 7/8.

“It seems like all the money is flowing into telecom, technology and the interactive-related stocks,” said Guy Truicko, equity portfolio manager at Unity Management.

The weakness in the Dow Jones index stemmed partly from cyclical stocks, which are vulnerable to investor concern about the sluggish economy. Caterpillar dipped 5/8 to 80 3/8 and Ford dropped 1/8 to 54 7/8.

* Brokerage stocks rose after posting strong earnings. Merrill Lynch gained 2 7/8 to 101 5/8, Bear Stearns rose 5/8 to 24 3/4 and PaineWebber added 1 5/8 to 34 3/8.

The market has been trading in narrow ranges recently, partly a reflection of investor concern about the economy and corporate earnings. Despite the good news on that front, the concerns remain, said Eugene Peroni, director of technical research at Janney Montgomery Scott.

“There is a high level of skepticism about how widespread the good news about earnings will be,” Peroni said.

Another factor holding back stocks was that an early bond market rally all but evaporated by mid-afternoon.

“It looks like it’s still an interest-driven market,” said Bill Allyn, a managing director at Jefferies & Co.

And stocks gained no support from foreign markets. Tokyo’s 225-share Nikkei average ended down 241.33 points at 20,137.31, while London’s financial Times 100-share average closed down 7.5 points at 3,094.7. In Frankfurt DAX 30-share average closed at 1,998.61, down 12.41 points from Monday.

Commodities

Gold prices were mixed overseas then surged in domestic trading. On the New York Commodity Exchange, gold bullion for current delivery jumped $7.60 an ounce to settle at $367.80. Silver settled at $4.421 an ounce, up from $4.310 on Monday.

Technical factors and big purchases by commodity funds helped drive the precious metal higher, analysts said.

Gold has climbed from less than $342 an ounce over the past month. It rose nearly $5 last week in a rally led by silver, which was perceived as undervalued.

Gold has been undervalued, said Jon Nadler, a vice president at Bank of America in New York.

“It’s probably catching up with the fact that it had gone a bit below where it should have gone, given the seasonal demand for jewelry and a possible slowdown in Middle Eastern sales,” he said.

Investment funds flooded the market with buy orders when December deliveries reached $364 and ounce, eclipsing Monday’s high of $363.70, said Richard McGraw, chief precious metals dealer with Credit Suisse in New York.

In energy trading on the New York Mercantile Exchange, light sweet crude oil for November delivery fell 6 cents to $18.71 a barrel; November heating oil fell .20 cent to 56.22 cents a gallon; November unleaded gasoline rose .06 cent to 52.63 cents a gallon; and November natural gas fell 3.4 cents to $2.151 per 1,000 cubic feet.

Other Markets

Long-term Treasury bonds fell in early trading, but finished unchanged at the end of trading.

The 30-year bond yield held steady at 5.92%, as did its price.

Prices of short-term Treasury securities, meanwhile, were 1/32 point lower and intermediate maturities fell by up to 1/8 point, the Telerate Inc. financial information service reported.

U.S. bond markets were closed Monday in observance of Columbus Day.

Treasury bond prices initially jumped as bond traders returning from a long weekend still focused on what many considered a weak September jobs report on Friday.

The Labor Department said that while the unemployment rate held at 6.7%, the 156,000 jobs added in the month were concentrated in low-paying, part-time positions.

That and other indications of weakness in the report suggested that the economy was not growing fast enough to push up inflation, which can hurt the value of securities that pay a fixed rate of return, such as Treasury bonds.

But bond sellers emerged amid the sharp increase in gold and silver prices, considered an indication of underlying inflation pressures.

The federal funds rate, the interest on overnight loans between banks, was 3%, up from 2.875% late Friday.

In currency trading, the dollar settled mostly lower on world markets Tuesday in uneventful dealings.

In currency markets, attention was focused on the German mark after Germany’s Constitutional Court gave its approval to the Maastricht Treaty, the framework for Europe’s political and economic union.

With the court ruling, Germany becomes the final European country to approve the treaty, which calls for approving a single currency by 1999.

Market Roundup, D6