Dow Dips on Profit Taking; Nasdaq Posts Another High

The continued recovery of smaller-company shares pushed some stock indexes to new highs Wednesday, but mild profit taking halted the blue-chip sector’s record-setting advance.

The Dow Jones industrial average fell 26.18 points to 7,357.23, trimming a 75-point deficit over the final half-hour.

Broad-market indicators were mixed, with the Nasdaq composite index notching its third straight record close, and the Russell 2,000 list of smaller companies setting its fourth straight mark.

Several big-name technology shares struggled with the blue-chip sector, but analysts found little reason to suspect an impending pullback from the market’s recent exploits.

“I’m amazed there hasn’t been more selling, considering the rally since April,” said Richard A. Dickson, a technical analyst at Scott & Stringfellow Inc. in Richmond, Va., noting the Dow’s nearly 1,000-point romp since the April 11 bottom of the market’s early-spring slide.

“Every time they try to take it down, the buyers come back in and bring it back up,” said Dickson. “The market looks remarkably healthy for something at this stage. We’re seeing the kind of signals you’d expect to see at the beginning of a bull market, so I have a hard time saying this thing is running out of gas.”

Interest rates were steady despite news that orders to U.S. factories for big-ticket durable goods rose 1.4% in April, exceeding forecasts. The Commerce Department report also revealed that the March decline in orders was smaller than originally estimated.

The strong manufacturing data contradicted other recent indications that economic activity may be slowing enough to keep inflationary pressures under control, but investors latched onto some pockets of weakness in Wednesday’s report, analysts said.

Stocks slid earlier this spring after the Federal Reserve Board moved to slow the economy by raising a key short-term lending rate. Investors had been worried that the Fed might slow consumer borrowing too much, hurting company profits, but the central bank passed on a chance for a second rate hike last week amid signs of moderating economic activity.

“My guess is that the market won’t start thinking about the Fed again until after we get the employment report a week from Friday,” said David Shulman, chief market strategist at Salomon Bros.

Meanwhile, the Treasury auctioned $16.5 billion in two-year notes. The high yield was 6.328%, down from 6.460% at the last auction April 22.

The offering was the smallest two-year note sale since October 1993.

Among Wednesday’s highlights:

* Technology shares were mixed. IBM, which split its shares 2 for 1, rose 1/2 to 90 1/8.

Analysts detected an improved outlook for the networking stocks. Among the group, 3Com jumped 4 3/8 to 51 1/8 and U.S. Robotics rose 7 3/4 to 88 1/2. FORE Systems was up 1 7/8 to 16 5/8.

* HFS tumbled 4 to 54 1/2 and CUC International lost 2 3/4 to close at 23 1/4 a day after the companies announced an $11-billion stock-swap merger.

* Navistar International gained for a ninth day, up 1/8 to 15 7/8--its highest level since July 1995. About 972,900 shares changed hands, four times the three-month daily average. Shares of the Chicago manufacturer of trucks, diesel engines and service parts have gained 69% in five weeks amid optimism for faster-than-expected profit growth.