BLUE-CHIP PURCHASES FUEL RALLY IN MARKET; BUYERS CONCENTRATE ON BIG-TICKET STOCKS.

Byline: Eileen Glanton Associated Press

Blue-chip stocks ended the week with a solid rally, although the prospect of an increase in interest rates next Tuesday kept many investors out of the market.

The Dow Jones industrial average rose 136.77 Friday to close at 11,100.61. For the week, the Dow gained 126.96, or 1.2 percent.

Broader stock indicators were also higher. The Standard & Poor's 500 rose 13.02 to 1,336.61, and the Nasdaq composite index rose 26.90 to 2,648.33.

Investors gravitated toward a handful of blue-chip stocks Friday, seeking safe bets before Tuesday's meeting of the Federal Reserve's policy-making committee. Most economists expect a quarter-percentage-point increase in short-term interest rates.

An increase on Tuesday would be the Fed's second this year as the central bank works to prevent a resurgence of inflation. There are fears the Fed also might see a need for a third rate increase later this year.

``Stocks may be up today, but investors don't see a lot of reason to step in front of stocks and build positions ahead of the Fed meeting next week,'' said Brian G. Belski, chief investment strategist at George K. Baum & Co., in Kansas City, Mo.

Investors who did seek out stocks chose big, established companies. American Express led the Dow higher, gaining $4.375 to $142.875. Procter & Gamble gained $3 to $97.25, and Alcoa rose $2.50 to $67.6875.

``We had a segmented rally in a handful of Dow industrials,'' said Barry Hyman, senior equity analyst at Ehrenkrantz King Nussbaum. ``I don't see participation elsewhere in the market.''

Stocks benefited as the dollar steadied against foreign currencies, helping to calm fears that investors are pulling money out of U.S. assets in search of higher returns in overseas markets.

On Thursday, the U.S. currency touched a seven-month low against the surging Japanese yen. A weak dollar boosts the costs of imported goods, adding to inflationary pressures, and also makes U.S. securities less attractive to overseas investors.

The steady dollar also helped lift bond prices, pushing down yields of 30-year Treasuries to 5.99 percent from 6.03 percent late Thursday.

While analysts said optimism about third-quarter earnings has begun lifting the market, investors punished a handful of companies that delivered bad news about their profit outlook.

Sprint sank $4.0625 to $45 after several Wall Street analysts cut their earnings estimates for the phone company, saying they do not expect Sprint to meet earnings projections for fiscal years 1999 or 2000.

Dun & Bradstreet, the business-information services provider, fell $5.1875 to $25.50 after saying it will miss profit forecasts in the third quarter.

Advancing issues outnumbered decliners by a 7-to-5 margin on the New York Stock Exchange. NYSE volume totaled 658.10 million shares, compared with 673.68 million in the previous session.

Despite the low volume, some traders bought heavily as Friday was a ``double witching'' day, with stock and index options expiring. Hyman said at least some of the market's gains came from traders working to balance their portfolios.

The NYSE composite index rose 5.73 to 626.09, and the American Stock Exchange composite index rose 2.72 to 787.79. The Russell 2000 index of smaller companies rose 1.61 to 434.38.

Overseas, Japan's Nikkei stock average rose 1.2 percent. Three Japanese banks - Dai-Ichi Kangyo Bank Ltd., the Industrial Bank of Japan Ltd., and Fuji Bank Ltd. - announced an alliance that would create the world's largest banking group, with assets of well over $1 trillion.