Visions of doomsday comfortably behind them, investors continued pouring money into high-tech stocks today, pushing the Nasdaq composite index to yet another record.

But while euphoria buoyed tech stocks on the first trading day of the year 2000, bond prices fell to their lowest levels since May amid rampant expectations that the Federal Reserve would raise rates to slow the economy, now that the Y2K bug is quashed. Those fears also pounded financial stocks, dragging down the Dow Jones industrial average and the Standard & Poor's 500-stock index.

"The Fed is increasingly frustrated by the tightening of labor markets, and I would not be surprised if they raised rates once or twice this year," said Eugene Ludwig, former comptroller of the currency and managing general partner of District-based Cornerstone Financial Partners.

That expectation was stoked by the release of a National Association of Purchasing Managers' index of factory activity showing evidence of continued economic strength. The index registered 55.5 in December, indicating that U.S. manufacturing expanded for an 11th straight month. On Friday, an employment report will show how strong wages have been and suggest whether the tight labor market is creating inflation pressures.

Higher interest rates would hurt profits at financial companies and the return on outstanding long-term bonds.

"A lot of investors came back from the holidays and found they were faced with unrealized losses in their portfolios, particularly if they were long in duration," said Larry Hathaway, global head of strategy at UBS Warburg. "It came as somewhat of a shock. And it caused a bit of a blood bath."

The price of the benchmark 30-year bond posted its biggest decline since May 14, sinking 1 3/4 points, or $17.50 per $1,000 in face value. The yield, which moves in the opposite direction of the price, rose to 6.62 percent, from 6.48 percent late Friday.

Yields on two-year notes, which are the most sensitive to interest-rate hikes, rose 15 basis points, to 6.38 percent, the highest level since April 1997.

"The difference in the yield at this point between a 30-year bond and a one-year bond is not that great," said Andrew Brooks, chief equities trader at T. Rowe Price. "So I don't know what the attraction is. You wouldn't catch me buying a long bond."

Investors poured money into tech stocks, continuing a trend that in 1999 drove up the Nasdaq composite index 86 percent. Today, the index rose 61.84, or 1.5 percent, to a record 4131.15, after swooning early in the day from a 123-point gain to an 80-point drop.

"It was a little bit back to the future," said Michael Holland, a New York money manager. "What 1999 was comprised of was today compressed into a single day. Investors are continuing to act on a worldwide economic explosion fueled in large part by technology."

Among Washington area companies, Entremed rose 2 7/8, or 11.2 percent. AOL moved up 7 1/8, or 9.4 percent. PSINet was up 4-11/16, or 7.6 percent, and Manugistics rose 1-7/16, or 4.5 percent. E-Plus, whose technology helps companies control inventories and manage operations, surged 90.5 percent, or 32-9/16, after winning a large contract last week from Ellerbe Becket, a national design firm.

On Friday, the Nasdaq, S&P 500 and Dow all posted records as investors were reassured by early reports of no Y2K problems around the world. But today many investors cashed in on the first opportunity to profit from stocks and defer taxes until 2001.

"After such a nice 1999, it's not a surprise to see people take those new gains," Holland noted.

The sell-off included some Washington area technology companies, including Micros Systems, which sank 9 1/4, or 12.5 percent, Omnipoint, which was down 12 3/8, or 10.3 percent. MedImmune sank 10 1/8, or 6.3 percent, and American Mobile Satellite was off 3-1/16, or 14.5 percent.

But the sell-off mainly focused on financial institutions, whose profits would be pinched by higher interest rates. The S&P 500 dropped 14.03, or 1 percent, to 1455.22. The Dow dipped 139.61, or 1.2 percent, to 11,357.51, with American Express and J.P. Morgan accounting for half the decline.

General Electric, which owns GE Capital, fell 4 3/4, to 150. Merrill Lynch fell 2-11/16, to 80 5/8. Morgan Stanley Dean Witter sank 7 3/4, to 135. Charles Schwab sank 1 1/4, to 37.

The declines came after a morning surge across the board. "At first, it looked like we were off to the races," Brooks said. "And then it got, well, interesting."

Staff writer Peter Behr contributed to this report.

CAPTION: TECHNOLOGY ROARS BACK

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