Dow's rate of increase may be gaining steam in 2004.

Even as the Dow Jones Industrial Average has climbed to 10,000 in 2003, it's been a laggard among benchmarks for the world's biggest stock markets.

Next year, the Dow average may vault to the front of the pack as investors shift their focus to larger companies and stocks such as Merck & Co. rebound, said investors including Mason Street Advisors LLC's Patricia Van Kampen.

"For the Dow to outperform next year, we'd have to assume we will get more of a transition back into larger stocks," said Van Kampen, whose firm manages $60 billion in Milwaukee. "That's very likely to happen."

The average finished the year at 10,453.92, or a 25 percent gain for the year--the first annual gain since 1999. Still, the Dow has trailed benchmarks from the Nasdaq and the Standard & Poor's 500 Index to ones in Venezuela, Brazil and Argentina, which more than doubled in dollar terms.

Investors have flocked to shares of smaller, less-established companies during a nine-month rally on expectations that they would be the first and biggest beneficiaries of an improving economy. As the pace of profit growth slows, they may look to bigger companies with steadier earnings, Van Kampen said.

Intel Corp., the world's biggest chipmaker, is one of two Dow members to trade on the Nasdaq Stock Market. It's also the benchmark's best performer in 2003. The other, Microsoft Corp., has risen 3.1 percent.

The appeal of stocks in the Dow average may already be on the upswing. The benchmark advanced 7 percent last month, besting the S&P 500's 5.1 percent gain and making the best December since 1991. The Nasdaq Composite rose 2.2 percent for the month, its 10th advance in 11 months.

The Dow average's 30 stocks are chosen by the editors of Dow Jones & Co.'s Wall Street Journal. The 107-year-old index's current members include six of the world's seven largest companies by market value: General Electric Co., Microsoft, Exxon Mobil Corp., Citigroup Inc., Wal-Mart Stores Inc. and Intel. Only Pfizer Inc., the third largest, is omitted.

Technology companies, the best performers in the stock market this year as an industry, have less representation in the Dow than in other benchmarks. They account for 13 percent of the average, compared with 18 percent of the S&P 500 and 42 percent of the Nasdaq.

Some of the Dow's members may have a better year in 2004 than they did in 2003. Shares of Merck and Johnson & Johnson, the average's two drug makers, have fallen this year on concern that the absence of new blockbuster medicines would crimp profits.

The declines may be an overreaction, said Robert Mitchell, a money manager at Northern Trust Corp. in Chicago.

"You've got stocks in here that are large and, let's say, have had issues this year," said Mitchell, whose firm oversees $430 billion. "They've been priced for a worst-case scenario."

Merck has fallen 19 percent this year; Johnson & Johnson has lost 8 percent. Both stocks have advanced in December. Other Dow members to rise this month include Exxon Mobil, the world's largest publicly traded oil company. The stock has trailed the average by gaining 8.9 percent in 2003.

"Those that were laggards, like energy and health care, have become potential leaders," said Steven Young, chief investment strategist at Bane of America Capital Management in St. Louis, which oversees $318 billion. "If that carries over into next year, the Dow should do better."