FINANCIAL MARKETS : Foreign Indexes Join Dow in Upward Trend

Stocks all around the world continued a two-day rally Wednesday, with shares in Brazil, Germany, France, Canada, Switzerland, Hong Kong, Argentina and elsewhere posting sharp gains or record highs amid hopes that international investing might finally be back in vogue.

Analysts said the foreign markets followed Tuesday’s rally in U.S. blue-chip stocks, which themselves saw a second day of solid gains in heavy trading Wednesday.

The Dow Jones industrial average posted a 16.62-point gain a day after it started the year with a 60-point rise.

Lower interest rates worldwide were cited as a force behind the rally. Also, traders said, international fund managers entered markets and made purchases of the major stocks of several exchanges. In Thailand, for example, stocks rose 3.3% on Wednesday as “players bought large capitalized issues,” said Thaneit Khantigaroon of Ekachart Finance and Securities.

In London, the FTSE-100 index closed up 27.7 points at a record high of 3,715.6 as further gains in the U.S. and currency considerations boosted confidence. Frankfurt’s blue-chip DAX index sprinted to a record closing high of 2,329.22, up 44.36 points for the day. Hong Kong’s blue-chip Hang Seng index soared 192.57 points to close at a 22-month high of 10,397.44.

Tokyo shares also soared this morning,the first day of trading for the new year, pushing the key Nikkei 225-share average up 570.56 points, or 2.87%, to 20,438.71 after one hour of trading.

In the United States, however, other indexes lagged the Dow.

“It’s a vicious two-tier market,” said Larry Wachtel, an analyst for Prudential Securities. “If you’re in a handful of blue chips, you’re sharing in another great day. If you’re in technology, you’re getting whacked around.”

The technology-heavy Nasdaq composite index fell 12.39 points to 1,046.26, although other indexes gained.

Advancing issues led decliners by nearly 5 to 3 on the New York Stock Exchange.

The Nasdaq’s decline marked a continuation of Tuesday’s sell-off in technology stocks.

Semiconductor issues fell after PaineWebber downgraded five of them, saying that despite strong industry trends, those stocks have a big downside risk. Alex. Brown & Sons also downgraded three technology stocks.

Applied Materials, one of the issues downgraded by both houses, fell sharply, losing 3 7/8 to 37 1/2; it was the Nasdaq’s most active stock. The other four PaineWebber downgrades lost ground too: Lam Research was off 3 1/4 at 42; Novellus Systems was down 3 5/8 at 48 1/2; Brooks Automation was down 2 3/16 at 11 13/16; and KLA Instruments was down 1 7/8 at 24 5/8.

Computer-related stocks were still suffering from an announcement Tuesday by Silicon Graphics that the company’s fourth-quarter earnings would fall below analysts’ expectations. Silicon Graphics shares fell 1 5/8 to 21 5/8 on Wednesday.

The technology sector “is the part of market that’s demoralizing,” said Hugh Johnson, analyst at First Albany Corp. “We’ve had so many attempts to restart the tech sector, and once again it’s failed.”

Optimism about a U.S. budget agreement helped the dollar gain strength abroad.

Currency traders “feel a budget deal will help shrink the U.S. current account deficit by reducing import demand, and that will be beneficial for the dollar,” said Foreign Exchange Analytics Partner David Gilmore.

The dollar was trading at more than 105 yen in early Asian trading today, above its 1995 high. On Wednesday, it rose to 1.4455 German marks from 1.4355 on Tuesday.

As the federal government shutdown went into a record 19th day, economic statistics went unreleased, the robbing the market, not to mention Federal Reservice Board policy makers, of clues to future interest-rate decisions.

Fed Vice Chairman Alan Blinder warned that the absence of economic statistics is placing a “serious hardship” on policy makers. That is raising concern among investors that any further reductions in the Fed’s key interest rates could be delayed.

“There is some concern that perhaps they will stand pat until they can figure out what the economy is doing,” said John Canavan, an analyst with Stone & McCarthy Research Associates Inc. in Princeton, N.J.

The yield of the Treasury’s main 30-year bond edged down to 5.95% from 5.96% late Tuesday.

Among Wednesday’s market highlights:

* Leaders in the blue-chip rally were consumer issues Procter & Gamble, up 2 1/2 to 85 5/8; Eastman Kodak, up 1 to 69 5/8; and AT&T;, whose shares rose 1 1/8 to 68 1/2, adding to gains made Tuesday after the company announced its plan to slash 40,000 jobs as part of its breakup.

* Transportation stocks rose, with the Dow Jones transportation average rising 27.51 points, or 1.38%, to finish at 2,027.88. They were led by airline stocks, which benefited from the expiration of three related taxes in the continuing federal budget battle. Delta Air Lines rose 2 3/4 to 78 5/8.

* Johnson & Johnson, up 3 3/8 to 87 5/8, touched off higher prices for a small number of health-care stocks after the Food and Drug Administration approved the marketing of its Ortho Pharmaceuticals’ tretinoin skin cream as a treatment for facial wrinkles and chronic sun exposure.

* Westinghouse Electric shares rose 1 1/4 to 18 3/8 after the company said it would sell its defense and electronic systems business to Northrop Grumman for $3 billion in cash, helping raise money for its acquisition of CBS. Northrop Grumman stock fell 2 3/4 at 62 on the possibility that its credit rating could be lowered after the purchase.

Oil prices rose to the highest level in seven months Wednesday, buoyed by stormy weather in the Gulf of Mexico that forced Mexico to suspend crude exports from three ports.

Mexico’s state-owned oil company, Pemex, suspended loadings at the Gulf ports of Dos Bocas, Pajaritos and Cayo Arcos, though company officials said it would not have problems meeting export contracts.

February crude ended up 8 cents at $19.89 a barrel after reaching a high earlier of $19.95, the highest level for a front month contract since May 19 at the New York Mercantile Exchange. Natural gas prices also rose.