Small Stocks Set New Highs; Dow Gains After Early Dive

A key index of smaller stocks rose to a new high Wednesday, while struggling blue chips eked out a tiny gain after an early dive.

Meanwhile, bond yields were mostly flat, and the dollar edged up against the German mark.

Early today in Southeast Asia, stock markets plummeted wildly after Malaysia’s main stock exchange said it restricted trading in all 100 stocks in the benchmark index--a move that apparently spooked already weary investors.

On Wall Street, Wednesday was another day of relatively light trading, with smaller stocks again attracting interest even as investors shied away from many highly valued blue chips.

The Russell 2,000 index of smaller shares rose 2.53 points, or 0.6%, to a record 420.84, eclipsing the previous high of 420.73 set Aug. 6.

Rising stocks outnumbered losers by 23 to 18 on Nasdaq, the home of most smaller issues. Winners topped losers by 16 to 12 on the New York Stock Exchange.

The Dow, meanwhile, closed up 5.11 points at 7,787.33 after falling as low as 7,697 at one point. The blue-chip index remains off 5.7% from its record high of 8,259.31 set Aug. 6, although it still is up 20.8% year-to-date.

By contrast, even though the Russell 2,000 has sharply outperformed the Dow in recent weeks, it is up just 16.1% year-to-date.

“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.

Stocks overall were supported by a calm bond market, despite tepid demand for the Treasury’s new five-year notes auctioned Wednesday. The average yield on the notes was 6.25%.

The yield on the bellwether 30-year T-bond ended at 6.65%, up from 6.64% on Tuesday.

In currency trading, the dollar gained against the German mark after tumbling in recent sessions. The dollar ended at 1.805 marks in New York, up from 1.799.

Meanwhile, early today in Southeast Asia, that region’s stock markets--already in deep declines in the wake of widespread currency devaluations--suffered extreme selling after the Kuala Lumpur Stock Exchange in Malaysia said it would restrict trading in key stocks.

“The original intention was to stem short selling, but the side effect is that it’s killing investor confidence,” said Michael Lim, who manages $1.65 billion at Prudential Portfolio Managers (Asia) Ltd. “Investors don’t like being trapped in investment decisions; the KLSE seems to have shot itself in the foot.”

The main Malaysia index was down a stunning 4.6% early today, to 808.95. In Indonesia, the main stock index was down 2.4%, while Singapore’s was off 2.4% and Hong Kong’s was down 1.9%. The worst carnage was in the Philippines, where the main index was down a spectacular 9.2%, to 2,073.

Among Wednesday’s U.S. highlights:

* Smaller stocks up sharply included Boston Chicken, up $1.22 to $13.13; Eltron, up $2 to $32.25; Jacobs Engineering, up $1.31 to $31.88; and Michaels Stores, up $1.06 to $24.94.

* Oil field services shares surged after a lease sale raised expectations that exploration in the Gulf of Mexico will climb.

The federal government accepted $616 million in bids for the leases, the largest amount for a western gulf sale in eight years.

Oil-patch shares gaining included Halliburton, up $1.50 to $46.56; Western Atlas, up $1.63 to $80.56; and Schlumberger, up $1.94 to $77.50.

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

* Many consumer products giants continued to slide. Those stocks are among the ones many analysts believe are most overvalued today.

Coca-Cola eased 38 cents to $58.63; Procter & Gamble was off 75 cents to $136.25.

* In the tech sector, Lycos surged $4.13 to $33.88. The Internet directory company reported a narrower-than-expected fourth-quarter loss on higher revenue from advertisements and licenses.

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.