NEW YORK (CNNfn) - Blue chips staged a rally in late trading Monday, propelling the Dow Jones industrial average up nearly 100 points. But the recovery was only part of the story, and analysts warned about the ominous weaknesses in the other half of a "two-tier" market because of concerns about Asia and the U.S. economy.
The Dow Jones industrial average ended up 90.88, or more than one percent, at 9,028.24. Market breadth was heavily negative, with losers ahead of gainers by 2,051 to 948 on volume of 623 million shares.
The Nasdaq Composite rose 2.27 to 1,933.26, and the broad S&P 500 index edged up 6.47 at 1,147.27.
Concerns about the economy simmered on Wall Street, with some forecasters expecting a drop in the gross domestic product later this week. The Bureau of Economic Analysis is scheduled to release an advanced second-quarter figure Friday, and some fear the GDP figure will be flat to negative for the first time in seven years.
Monday's seesaw session follows the Dow's worst weekly point loss ever, a drop of 400.6, or 4.29 percent. The Dow dropped 195 last Thursday and didn't recoup any ground Friday.
"Last week was a bad week for the market, and this week does not look to be more propitious," said Alan Ackerman, senior vice president and market strategist at Fahnstock & Co.
Ackerman said selected blue chips and some Nasdaq members have fueled the bull market, but their movement has masked bearish tendencies in the broader market.
Many analysts said Wall Street developed into a "two-tier" market in recent months. On one hand, selected blue chips and technology heavyweights have performed well. But much of the broader market has been pummeled by earnings worries and concerns about Asia.
"I think we've been in a type of correction since mid-June," Ackerman said.
Fears about Asia also have thrown cold water on many analysts' outlooks. Morgan Stanley Dean Witter's top investment strategist, Barton Biggs, increased his cash holding and trimmed his equities position by 1 percentage point, to 12 percent, in his global model portfolio. He also lowered European equities by 1 point, to 13 percent.
The bond market dropped slightly, failing to capitalize on the dollar's rise against the yen as investors questioned whether Keizo Obuchi, the presumptive next prime minister, will be able to enact swift fiscal reforms. The stock market's weakness also failed to lure new investors to bonds. The benchmark 30-year Treasury bond was down 7/32 in price, for a yield of 5.70 percent.
The dollar rose against the yen to a five-week high on news that Obuchi may pick Kiichi Miyazawa as finance minister. Miyazawa has played a key role in drafting what many believe are ineffective fiscal policies. Investors seem to prefer Seiroku Kajiyama because they believe he would be better able to forge aggressive policies. The dollar was up slightly against the German mark.
Wall Street had its eyes on telecom stocks for most of the day, as news of several billion-dollar deals triggered interest.
AT&T edged up on news of a $10 billion deal with British Telecommunications to provide international telephone services to businesses. Shares of AT&T (T) rose 1/16 to 60. American depositary receipts of British Telecom (BTY) surged 8-3/8 to 146-1/8.
Investors seemed unimpressed by reports of a possible $55 billion merger between GTE and Bell Atlantic. Shares of GTE (GTE) were down 2-3/16 at 55-3/4, while Bell Atlantic (BEL) was down 3/16 at 45.
Earnings continued to motivate the markets, with shares of Dow member American Express rising after the company reported better-than-expected profits. American Express (AXP) was up 5-3/4 at 112-13/16.
Another winner of the day was fellow Dow component General Motors (GM), which rose on hopes that it may be able to end a strike with the United Auto Workers. Shares were up 2-1/16 at 73-1/8.
But chemical maker Union Carbide (UK) was down after reports of a 38 percent slump in second-quarter profits. Shares were off 2-1/8 at 48-7/8.
Small companies suffered more than blue chips, however. The Russell 2000 index of small stocks was down 5.42, or 1.24 percent, at 433.16.
The Russell 2000's decline prompted even a longtime bull, Ralph Acampora of Prudential Securities, to warn investors to stay clear of small-company issues. He remained bullish on blue chips, however. (203K WAV) or (203K AIFF)
"I have not changed my opinion on blue chips.
This correction creates a buying opportunity," Acampora said. "If you talk about other averages, like the Russell 2000, they look terrible. Many of these stocks have a bear face, so you have a two-tier market."
In the tech sector, always sensitive to news about Asia, some big issues turned around in the afternoon after posting losses in the morning. Software titan Microsoft (MSFT) was up 2-15/16 at 116-3/4, while Dell Computer Corp. (DELL) added 5-3/8 at 110-1/4. Intel Corp. (INTC) finished up 3 at 86-1/16, despite a slump in the price earlier in the day after the company announced it was cutting chip prices.
Internet shares were mixed, with some stocks joining in the recovery and others left far behind.
Online giant America Online (AOL) was down 1-1/16 at 117-1/2. But Internet bookseller Amazon.com (AMZN) ended up 1-5/16 at 125-9/16.
Among the search engines, Yahoo! (YHOO) jumped 7-1/16 to 189-3/16, while Excite Inc. (XCIT) was off 2-3/8 at 42-1/4 and Lycos (LCOS) was down 2-1/2 at 64-3/4. (Click here for a look at today's CNNfn's market movers).
-- by staff writer Martine Costello