New York Market: Nasdaq rally wrong-foots the experts

CONFOUNDING strategists who had predicted a lull before the year- end, the Nasdaq Composite index hit 3,000 last Tues- day and kept climbing. Investors said they expect the rally to continue into next year.

The Nasdaq index, one-quarter of which is made up of technology shares, has benefited as investor concerns about the year 2000 bug have lessened. In addition, technology companies in the Standard & Poor's 500 index posted an average 33 per cent profit growth in the third quarter, twice the average of recent years.

"Everyone's discounting the Y2K concerns, looking forward to the new year and anticipating a huge first quarter,'' said Coletta Dorado, equity trading director at JW Genesis Securities in Florida.

For the week, the Nasdaq rose 4.6 per cent and the S&P 500 rose 0.5 per cent. The Dow Jones Industrial Average, including Intel and Microsoft for the first time, fell 0.2 per cent.

The Nasdaq has returned 42 per cent this year, and the Nasdaq 100 index, made up of the largest stocks, 50 per cent. The S&P 500, by comparison, has returned 13 per cent.

Modest by comparison, the S&P 500's gain has still been driven by technology shares. Of the top 10 contributors to the index's advance this year, seven are computer-related: Microsoft, Intel, Cisco Systems, Nortel Networks, America Online, Texas Instruments and Sun Microsystems.

US Treasury bonds, which have been down for most of the year, surged last week, driving 30-year yields down 33 basis points to 6.05 per cent. The biggest gain was on Friday, when a government report showed slower- than-expected wage growth.

Two weeks ago, many people thought the Federal Reserve would raise interest rates before the year-end. Fewer feel that way now. Bonds' losses for 1999 swelled to 12.5 per cent on 26 Oct- ober on inflation concerns, putting them on course for their worst year ever. The loss through Friday narrowed to 8.3 per cent.

The wage figure "changed the picture quite a bit'', said Henry Willmore, a senior economist at Barclays Capital Group, one of 30 primary dealers authorised to trade directly with the Fed.

Of the primary dealers, 17 now expect no more rate increases this year. The other 13 see an increase on 16 November, and none on 21 December. Before the report, most had predicted an increase this month.