DOW 10,000; BULLS FINALLY CRASH THE BARRIER.

Byline: Deborah Adamson Daily News Staff Writer

Despite bombs bursting in Yugoslavian air, the benchmark Dow Jones industrial average soared Monday to close above 10,000 for the first time.

The index of 30 blue-chip stocks had flirted with 10,000 in the past two weeks, breaching it three times but failing to sustain momentum at the close. This time, the Dow mustered enough muscle to rally 184 points or 1.9 percent to close at 10,006.78, led by IBM Corp.

The broader Standard & Poor's 500 Index rose 27.37 points to 1,310.17, a gain of 2.1 percent. Microsoft, which split 2-for-1, led the S&P's advance. The tech-heavy Nasdaq Composite Index rose 73.67, or 3 percent, to 2,492.84.

The market gained on a variety of expectations - that the Federal Reserve Board's FOMC won't raise rates when it meets today, on merger news between BP Amoco and Arco, a better outlook for corporate earnings and a technology sector comeback.

``I didn't think I'd see it in my lifetime,'' said Richard Earnest, a fund manager for the billion-dollar HighMark Value Momentum fund in Los Angeles who saw the Dow breach 1,000 in 1967.

It didn't seem to matter that the United States is leading a NATO bombing effort in Eastern Europe and there's talk that ground troops could be needed as well.

``The market shrugged that off completely,'' said Arnold Kaufman, editor of the Standard & Poor's Outlook, an investment newsletter in New York. Investors believe that the conflict is ``limited to that part of the region and will be over fairly quickly. They don't see any economic influences, nothing like an oil cutoff.''

Instead, he said, news about the merger between BP Amoco and Arco in Los Angeles ``was a positive development, especially for big multinationals which are carrying the market. It's an indication that the global mergers and acquisition trend is continuing. Size is important in competing in the new economy of the new millennium.''

There's also a belief that first-quarter earnings should be better than expected, since fewer companies have been preannouncing lower-than-expected results, Kaufman said. Asian and Latin American economies seem to be rebounding as well, he added.

Analysts say the roots of the 10K Dow go back to the start of the bull market in 1982, launched following the inflation-fighting efforts of then-Fed Chairman Paul Volcker. His successor, Alan Greenspan, has made holding inflation down his top priority; today, the U.S. economy is entering its ninth year of expansion, the longest during peacetime.

Analysts also noted the bull market has been mainly a large-cap phenomenon. While there have been some rallies for small- to mid-caps, these sectors haven't performed as consistently as have large-cap issues over the past 16 years, Earnest said.

``Small and mid-caps are lagging badly,'' Kaufman said. ``They can't seem to attract investors.''

He cites the popularity of indexing - whether in mutual funds or individual securities - as a contributing phenomenon to the large-cap gains. Also, global investors tend to buy large-caps, since these are names they know.

But in spite of the Dow's apparent strength, many expect it to take a breather in the next few months. The market is still overvalued and technical indicators point to vulnerability, Kaufman said.

``The Dow will struggle to get much above the current level. In three months, there probably will be a correction and it'll come back up again by the end of the year,'' he said.

Earnest finds it troubling that there is no surge in corporate earnings and interest rates aren't declining, factors that typically boost markets.

Don Wellenreiter, a commodity trading adviser at Defined Risk Asset Management in Newbury Park, believes a 10 percent to 15 percent correction is imminent.

Aside from the usual cries of overvaluation, Wellenreiter also is concerned that bond traders were worried enough Monday to sell off bonds, pushing prices down and yields up. The effect is to tick up long-term interest rates. (The Fed controls short-term interest rates.)

When a bond's yield goes up, it becomes a more attractive option for mutual fund managers, who might bail out of a high stock market into bonds. In addition, Wellenreiter thinks the Yugoslavian war could prove to be stickier than investors currently believe.

``If it spreads, it can be quite worrisome,'' he said.

Myrl Combs, a 76-year-old retiree in Chatsworth, is happy to see the Dow rise to new heights. It didn't deter her from buying GTE and Lucent on Monday.

``I think it's great,'' she said.

But Combs also believes a correction is coming.

``People will get scared and they'll sell off,'' said the retiree, who's a long-term investor. ``I think that's what happened last week.''

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Photo: (color) no caption (stock market trader)

Chart: The Dow Jones industrial average closed above 10,000 less than a year after it broke through 9,000. A look at the Dow's thousand-point milestones and how long it took to reach them.