Internet Stock Fever Soars While Fears Chill Blue Chips

In financial markets Monday, there was the Internet stock sector--and everything else.

While Net-related shares soared by huge amounts even by their volatile standards, Wall Street overall ended mostly lower amid a sinking U.S. dollar, rising bond yields and growing fears that Brazil is headed for economic ruin.

The Dow Jones industrial average eased 23.43 points to 9,619.89. Though the Dow recovered from an 111-point loss, falling stocks outnumbered winners by a 19-11 ratio on the New York Stock Exchange, home of most blue-chip shares.

By contrast, on the Nasdaq market--where most Net-related shares trade--winners outnumbered losers, and the Nasdaq composite index surged 40.18 points, or 1.7%, to a record 2,384.59.

“The techs at this point are marching to a different drum than the rest of the market,” said Joseph Barthel, investment strategist at Fahnestock & Co. in New York.

Indeed, many analysts are fearful that global markets are heading for a reprise of last August’s turmoil, when Russia’s surprise currency devaluation set off panicked selling worldwide.

This time, the major fears center on Brazil and on Japan.

Brazil’s stock market dove 5.6% on Monday after a call by the country’s second-most populous state to withhold debt payments to the federal government spurred some investors to pull money out.

That prompted concern that Brazil could eventually be forced to default on its foreign debt--and devalue its currency--sending shock waves worldwide.

The fears hammered other Latin American markets as well. The Mexican market fell 1.3%.

Meanwhile, in currency trading, the dollar fell for the ninth day in 10 against the Japanese yen, sinking to a 28-month low.

The dollar ended at 108.93 yen in New York, down 2 yen from Friday. It traded as low as 108.22, weakest since Aug. 29, 1996.

The unexpected strength in the yen in recent months in part reflects Japanese investors’ decisions to repatriate more capital from abroad, some analysts say.

Although that could indicate more optimism that Japan’s economic slump is ending, the strong yen could, ironically, undermine a recovery by hurting Japanese exporters.

Early today in Asia, the dollar rebounded to 111.33 yen on rumors that the Bank of Japan was buying dollars in the market, to halt the currency’s decline.

For now, one casualty of the dollar’s weakness is the U.S. bond market: Yields on long-term Treasury bonds rose to nine-week highs on Monday.

With the dollar’s drop against the yen, “the feeling may be that U.S. assets aren’t as attractive,” to Japanese investors, said Frank Rachwalski, who oversees $18 billion at Scudder Kemper Investments in Chicago.

The 30-year T-bond yield ended at 5.31%, up from 5.27% on Friday.

Brokerage Goldman Sachs said Monday that it is cautious about investing in U.S. Treasuries, citing strong U.S. economic growth and low odds that the Federal Reserve will again cut interest rates soon after easing its monetary policy three times late last year.

But if blue-chip stocks’ appeal has faded a bit for the fundamental reasons cited Monday, the Internet stock frenzy only appears to be gaining steam.

The stocks zoomed following more bullish comments by brokerage houses, Compaq’s surprise decision to buy Shopping.com, and a stock split by one of the sector’s hottest issues:

* America Online soared $18.63 to a record $165.13 after Merrill Lynch raised its price target for the shares to $195.

* Broadcast.com, the online broadcaster of sports, news and music and that stunned Wall Street on Friday when it jumped 50%, said it would split its stock 2 for 1. It climbed an additional $87.56 to $285.05.

* Internet service provider PSINet leaped $5.13 to $28 after it announced the purchase of fiber-optic capacity that will link Internet operations in Japan, China and other countries.

* Yahoo, the Net directory firm, rocketed $70.88 to $414.50 after signing a distribution agreement with IBM. Yahoo will report fourth-quarter earnings today after the close of trading.

* DoubleClick jumped $20.69 to $78.56. The Net ad firm said its network connecting buyers and sellers of online ad space placed more than 5 billion ads on 6,400 Web sites worldwide in December.

Shares of companies that do business over the Internet have soared for the last month on investor enthusiasm for booming online sales, as the number of people using the Web is expected to rise 28% to 147 million this year, according to International Data Corp.

“There are too many people who want to own these stocks and not enough [available shares] to go around,” said Paul Cook, co-manager of the Munder NetNet Fund. “The opportunity is open-ended” for Internet sales as more people get online.

Still, many analysts warn that the stocks are reaching such extreme heights that one small bit of bad news could trigger a massive bout of selling. But so far, that bit of bad news hasn’t materialized.

In other market highlights:

* Intel jumped $10.06 to $139.75 in advance of what is expected to be a strong earnings report today. Other big-name tech winners included Dell, up $4.19 to $82, and IBM, up $1.69 to $189.25.

* Drug stocks were sharply lower, with Merck down $3.13 to $150.69 and Warner-Lambert off $3.25 to $71.63. Analysts said some investors were selling drug shares and other consumer stocks to reinvest in stocks that would benefit more from U.S. economic strength.

Market Roundup, C13

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Net Mania Obscures Wall St. Worries

The stock market diverged sharply Monday, as Internet-related shares posted huge one-day gains while blue chips were pressured by the dollar’s plunge against the yen and by fresh worries that Brazil’s economy may collapse.

Ravenous for Anything.com

The latest surge in Internet stocks has more than doubled the Interactive Week index of 50 Net-related shares since September. Monthly closes and latest:

Monday: 765.04

How Net Shares Fared Monday

Price jumps for some key Internet stocks:

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Monday Monday Pct. Stock close change change Go2Net $119.94 +$53.94 +81.7% Infoseek 87.75 +32.63 +59.2 Broadcast.com 285.06 +87.56 +44.3 Lycos 131.00 +39.25 +42.8 GeoCities 76.13 +21.25 +38.7 Doubleclick 78.56 +20.69 +35.8 Yahoo 414.50 +70.88 +20.6 Amazon.com 184.63 +24.38 +15.2 Inktomi 178.75 +21.25 +13.5 America Online 165.13 +18.63 +12.7

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Sources: Bloomberg News, Bridge