Blue-chip industrial stocks again stole the spotlight from flashier technology shares, pushing higher as investors shied away from the slumping Internet sector.
The Dow Jones industrial average rose 40.02 to close at 11,551.10. The Dow lost some ground late in the session and failed to top Monday's closing record of 11,572.20.
Broader indicators were lower. The Nasdaq composite index fell 71.17, to 3850.02, and the Standard & Poor's 500-stock index fell 6.31, to 1432.25.
Yahoo led a decline in Internet stocks. Shares of the Internet search engine fell 39-13/16, to 357-9/16, a day after the company posted a better-than-expected profit report. Yahoo said late Tuesday that it earned 19 cents per share in the fourth quarter, above Wall Street's prediction of 15 cents per share.
But company officials warned in a conference call that Yahoo's strong revenue growth is not sustainable. Several Wall Street analysts stepped in to defend the stock, but investors sold shares nonetheless.
America Online fell 4 1/2, to 60, as investors continued to fret about the company's growth potential after it merges with Time Warner. AOL shares have fallen 19 percent since the company announced its bold move to acquire the more traditional media company.
Microsoft fell 3-/16, to 105-3/16. Just before the close of Wall Street's regular session, the Associated Press reported that government lawyers involved in Microsoft's antitrust case want the company to break itself into three parts to dilute its competitive advantage.
With technology stocks slipping, investors Jagain sought out relative bargains in the industrial and consumer-goods sectors. After lagging behind the highflying Nasdaq in the second half of 1999, the Dow Jones industrials have outstripped other market measures so far this year.
Today, Merck rose 1-7/16, to 74-7/16, and McDonald's rose 1 3/4, to 42 3/4.
General Motors was the Dow's strongest component, rising 3-7/16, to 76 3/8, amid reports that Boeing will buy GM's Hughes Electronics Corp.'s satellite-manufacturing operations. Boeing edged up 3/16, to 43-1/16.
The broadening of the market beyond its earlier focus on high technology has created a healthier environment for investors, many analysts believe.
"Breadth has improved dramatically this year," said Gregory Nie, technical analyst at First Union Securities in Chicago. "This market has a good enough, healthy enough underpinning to support a real rally."
Still, stocks may struggle as investors await the next round of economic indicators. On Thursday, the government will report on producer prices for December, as well as retail sales. On Friday, the Labor Department will release its consumer price index, a widely watched gauge of inflation.
The reports should offer some indication of the Federal Reserve's next move on interest rates. Many analysts believe the Fed will raise rates at its next meeting on Feb. 1 and 2, and may impose further hikes later in the year to keep inflation under control.
Higher interest rates can hurt stocks by cutting into corporate profits as it becomes more expensive to borrow money.
Bond investors, highly sensitive to inflation and short-term rate changes, sent the yield on the 30-year Treasury bond to 6.71 percent, from 6.67 percent late Tuesday, as the price fell $4.37 1/2 per $1,000 invested. Bond yields are now at their highest levels since July 1997, pressuring stocks by offering lucrative, fixed returns.
"There's really not much that's more important to investing than inflationary expectations and interest rates," said Robert Stovall, president of Stovall/Twenty-First Advisers in New York.