Blue-chip stocks fell steeply amid worries that rising interest rates will ultimately cut into corporate earnings, while signs of strong growth from leading technology companies boosted the Nasdaq further into record territory.
The Dow Jones industrial average fell 138.06 to close at 11,351.30. The Dow pitched wildly during the session, rising as much as 68 points early and plunging as much as 214 at midday.
The Nasdaq composite index rose 38.22, to 4189.51, extending the record high reached the day before. The Standard & Poor's 500-stock index fell 10.33, to 1445.57.
Stocks rose at the opening bell after IBM, which sent a chill through the technology sector last fall when it said sales had slumped because of worries about year 2000 computer problems, easily beat Wall Street's profit forecasts.
IBM stock rose 6 3/8 from Wednesday's 4 p.m. close, finishing at 121 7/8.
Alcoa dropped 4 5/8, to 73 1/2, as the company announced plans to restart primary aluminum production to meet growing global demand. The announcement sparked fears that aluminum prices will drop, hurting Alcoa's bottom line. A steady rise in aluminum prices last year helped Alcoa turn in the highest returns of any Dow component stock.
Consumer products companies also fared poorly yesterday. Procter & Gamble fell 2-13/16, to 112-9/16, and 3M fell 3-11/16, to 95 1/8.
Analysts said worries that the Federal Reserve will raise interest rates this year are affecting blue-chip stocks much more sharply than highflying technology companies. Higher rates can cut into corporate profits by making it more expensive to borrow money.
Indeed, investors rewarded several technology leaders for their strong growth.
On the Nasdaq, Apple Computer rose 6-15/16, to 113 1/2. Apple said late Wednesday that it earned $1.03 per share in its most recent quarter, coasting past published estimates of 90 cents per share and past the "whisper number" of 97 cents per share.
Not every technology leader was rewarded for strong profits. America Online, which has seen its stock price tumble since the company announced its intentions to merge with Time Warner, slipped 7/8, to 64. AOL said late Wednesday that it earned $224 million, or 9 cents a share, in the quarter ended Dec. 31, more than double the $86 million, or 4 cents a share, in the same period a year ago. Analysts had expected AOL to earn 8 cents per share.
The Russell 2000 index of smaller companies rose 7.26, to 527.28, a new closing record. The index, which lagged through much of 1999, has surged so far this year and has set new closing records in four consecutive sessions.
Trading was fairly volatile a day ahead of Friday's "double witching" session, when quarterly stock and index options expire, forcing traders to adjust their portfolios. These quarterly deadlines tend to increase volume and volatility.