NEW YORK MARKET: Hi-tech shares lead small-firm advance

ESHARE Technologies was among the top three gainers in US stock markets this week, helping the Russell 2000 Index of small stocks to record its biggest three-week advance since April.

The Russell, for five years a laggard as large stocks attracted the biggest flows of money, started to revive last month on a rally in technology stocks. It is still 8.5 per cent below its high of 491.41, reached in April last year. But as computer-related shares rally and their weighting in the index increases, the Russell is likely to benefit.

Gains in computer companies have pushed the technology component of the index to 18.1 per cent from 12.6 per cent a year ago. Because of the increasing importance of technology stocks to the Russell, it's starting to behave more like the Nasdaq Composite, a broader index which includes big technology stocks like Microsoft and Intel. The Nasdaq - which is 52 per cent computer shares - has gained 47 per cent this year.

The two biggest winners in the US markets last week were both Nasdaq stocks. Scansoft, a digital imaging software maker, was up 360 per cent. Be Inc, the maker of a computer operating system that competes with the dominant Windows system sold by Microsoft, was up 215 per cent. Eshare, a seller of telemarketing customer service software, rose 130 per cent. For the week, the Russell 2000 gained 1.7 per cent, while the Nasdaq jumped 3.8 per cent. The Standard & Poor's 500 Index rose 1.9 per cent, and the Dow Jones Industrial Average gained 0.6 per cent.

In the final quarter of 1999, the earnings growth of small-capitalisation companies is expected to outpace that of large caps, with analysts forecasting 25 per cent growth for the S&P 600 and 18 per cent for the S&P 500.

Part of the problem with smaller stocks this year has been that investors shun riskier investments when interest rates are rising. Federal Reserve policy-makers have raised rates twice this year, in June and August. They meet again on Tuesday. Armed with evidence of faster inflation, they can probably justify another rise.