NEW YORK MARKET: Manufacturers come back from the dead

THE underdogs led the market last week, and investors expect more of the same in coming weeks. Beaten-up natural resource and manufacturing companies such as International Paper Co, Alcoa and Caterpillar soared on optimism for revived demand for US exports in Asia. Their gains came at the expense of large computer stocks such as Compaq and Sun Microsystems, which were pounded on signs of slowing revenue growth in the industry.

"All of a sudden the stocks we've been making money on have been taken out behind the woodshed," said Courtney Smith, chief investment officer for Orbitex Management. The drop in computer stocks took the S&P's 500 Index down 2.2 per cent. The Nasdaq, which had rocketed 83 per cent since 8 October, dropped 4.3 per cent, its worst performance in 11 weeks.

Small stocks, which have lagged the market for five years, outperformed the Nasdaq, the S&P 500 and Dow Jones Industrial Average. "This is a great week for the Russell," said Bob Freedman at John Hancock Advisers. "Those of us who have commitment to small aggressive stocks have some hope we can begin to participate in this market."

One influential investment strategist said growth stocks didn't deserve the beating they got. Abby Joseph Cohen, of Goldman, Sachs, whose bullish calls have proved correct for years, attributed the week's declines in growth stocks to concern that a pickup in economic growth worldwide would drive up interest rates, making investors less willing to pay the high prices such stocks command. "It is not appropriate to avoid stocks with interest-rate sensitivity," Ms Cohen said. "Many of these growth and financial service companies will enjoy improved earnings progressions as a consequence of a less feeble global economy."

The Dow average added 3.2 per cent for the week, boosted by a 31 per cent gain in Caterpillar, the No 1 maker of farm equipment. International Paper and Alcoa gained 25 per cent and 20 per cent for the week. These stocks had lagged consumer shares for the past year because of weak demand in Asia, where most economies are struggling to recover from recession.

Nato air strikes in Yugoslavia helped lift the shares of defence-related stocks. Defence officials said Boeing and Raytheon could receive orders of about $604m (pounds 375m) to upgrade older model cruise missiles.