NEW YORK -- U.S. stocks closed with modest gains as confidence in the economic recovery outweighed a slump in Intel Corp. and other semiconductor shares.
The market's advance flagged in the final half hour of trading after computer-driven sell orders wiped out almost all of the gain in the Dow industrials, causing it to close just shy of a record, traders said.
Stocks advanced as Friday's report showing the unemployment rate fell to a three-year low, coupled with a plunge in oil prices yesterday, reinforced the perception that the economy is gaining strength without generating inflation, traders said. That means interest rates probably would stay low, they said.
"People are going back to work, interest rates are still coming down, and energy prices are falling," said Richard Ciardullo, head trader at Eagle Asset Management, which oversees about $6 billion. "That's a pretty good environment" for stocks.
Most indexes up; Nasdaq falls
The Dow Jones industrial average closed up 6.14, at 3,710.21, ending just below its record close of 3,710.77, set Nov. 16. The average rose as much as 17.32 points, to 3,721.39, yesterday.
The Standard & Poor's 500 Index added 1.54, to 466.43.
The Nasdaq Combined Composite Index, which has done better than these other two major market measures this year, closed down 1.13, at 771.09, depressed by a plunge in Intel shares. The index tumbled as much as 6.61 points, to 765.61, yesterday.
Intel, the second-most actively traded U.S. stock, closed down $4, at $59.50, after a Merrill Lynch & Co. analyst, Thomas Kurlak, lowered his investment opinions of Intel and Motorola Inc. to "neutral" from "buy" for the next 12 months. Mr. Kurlak also reduced his earnings estimates on concern about a projected slowdown in semiconductor sales. Intel bounced off the day's low of $56.25 after an analyst at Hambrecht & Quist raised his rating to "buy."
Fans of chip stocks viewed yesterday's plunge as a chance to add to positions.
"We don't think this is indicative of a round of major earnings reductions coming for the semiconductor stocks," said David McHugh, portfolio manager at Northern Investment Counselors.
Nine stocks rose for every seven that fell on the New York Stock Exchange. Trading was active, with about 292 million shares changing hands on the Big Board.
Optimism about the economy was reinforced Friday, when the Labor Department reported 208,000 nonfarm jobs were created in November, beating analysts' forecasts of 174,000. The unemployment rate fell to 6.4 percent from 6.8 percent in October.
The stock market rose in part because "bonds haven't had a horrendous reaction" to the jobs report, said Edward Laux, head trader at Kidder, Peabody & Co. The yield on the benchmark 30-year bond dropped to 6.24 percent from 6.27 percent on Friday, and fell further, to as low as 6.17 percent yesterday.
Low interest rates are good for the stock market because they stimulate economic activity, reduce financing costs and prompt investors to move money out of low-yielding bank deposits and into equities.
Meantime, concern about inflation eased as crude prices tumbled 40 cents a barrel, to a five-year low of $14.57 a barrel, amid weak demand and a world oil glut.
Semiconductor issues were among the biggest decliners in the S&P; 500, followed by domestic oil companies.
Micron Technology slid $1.50, to $46.50; Motorola skidded $2, to $94.125; Texas Instruments Inc. slumped $2, to $62.125; and Advanced Micro Devices declined 75 cents, to $17.75. Applied Materials Inc. lost $2, to $35.75; Teradyne Inc. eased $2.125, to $22.25; and Lam Research Corp. finished down $1.50, at $29.75.
"If it wasn't for the semiconductor stocks, the [Nasdaq] market wouldn't be down," said Lance Zipper, head trader of Nasdaq stocks at Kidder, Peabody & Co.
Computer shares off
The weakness in semiconductors spread to personal computer shares. Compaq Computer Corp. shed $1.625, to $72.75, after Chairman Eckhard Pfeiffer told investors that 1994 revenue growth would slow from 1993's brisk rate.
Among domestic oil producers, Amerada Hess Corp. eased 62.5 cents, to $45.125. An Oppenheimer & Co. analyst, Paul Ting, widened his loss estimates on concern about falling oil prices.
Long-distance carriers, electric utilities, beverages and major regional banks were among the biggest gainers yesterday.
Dreyfus Corp. rose $1.875, to $46.375, after the mutual-fund company agreed to be acquired by Mellon Bank Corp. for stock valued at $1.85 billion. Mellon closed down $2.375, at $53.
Seagram Co. went down 75 cents, to $26.75. Shares of the wine and spirits maker dropped after one of Charles Bronfman's trusts reportedly sold 3.7 million Seagram shares. Mr. Bronfman is Seagram's co-chairman.