New York Market

SO-CALLED "value stocks", which trade at low prices relative to earnings, have lagged growth stocks, which tend to trade at higher price- earnings ratios, for the past five years. In the past two weeks, value stocks have looked better.

Since 2 February, the Standard and Poor's Barra Value index has narrowed the gap on the S&P Barra Growth index. It has fallen less, 1.25 per cent, while the growth index has dropped 3.62 per cent. The value index includes such stocks as phone company GTE, banker First Union and International Paper.

"When a group has been out of favour, at some point the stocks don't go down any more," said Tom Hudson, a money manager at Lord Abbett Affiliated Fund. "Then, even a little disappointment in the growth part of the market gives the [value stocks] better relative performance."

For the week, the Nasdaq Composite Index, laden with technology shares, fell 2.2 per cent, to 2,321.89. Dell Computer sank after an analyst said the third-largest personal computer maker's fourth-quarter sales, out on Tuesday, won't meet investors' expectations. Internet shares dropped on concern that USA Networks' low offer for Lycos, a web search company, indicated weakness in the internet industry.

The Standard & Poor's 500 index lost 0.8 per cent for the week, and the Dow Jones Industrial Average fell 0.3 per cent. The Morgan Stanley Cyclical index, made up of the companies whose businesses are most closely tied to the economy - most of which currently qualify as value plays - has risen 0.6 per cent since 1 February.

"On the down days, we're starting to see the cyclicals hold in pretty darn well, so that's a good sign," Mr Hudson said.

Value stocks, which do well in periods going into economic expansion, have played second fiddle to growth stocks such as Microsoft and Cisco Systems. The last year the S&P Barra Value index outperformed the S&P Barra Growth index was in 1993. Last year, growth beat value by 28 per cent.

Economic reports in the past two weeks have shown a rosier economic picture than most had forecast, with steady unemployment and a greater than expected number of jobs added in January. The reports indicate that economic expansion will continue. Eric Sorensen, a quantitative strategist at Salomon Smith Barney, said value stocks should benefit over the coming year from that accelerated growth.