MARKET CLOSES AT RECORD HIGH STOCK MARKET REBOUNDS AS DOW TOPS OLD RECORD.

Byline: Jonathan Fuerbringer The New York Times

The stock market rallied across the board Monday as the Dow Jones industrial average soared to a high and stocks of smaller companies continued a resurgence that has seen them climb almost 8 percent in a little more than a week.

The Dow jumped 143.29 points, or 2.03 percent, to 7,214.49, outstripping its former high by 129 points. The Dow has now recovered the ground it lost in the March-April sell-off and much more. The Standard & Poor's index of 500 stocks also hit a high, finishing at 830.29, up 17.32 points, or 2.13 percent.

But even more spectacular was the performance of small-capitalization stocks, which have sharply underperformed their bigger brothers the past year and fell far steeper in the recent sell-off that pushed the Dow down 9.8 percent.

The Russell 2000 small-cap index rose 2.4 percent Monday and is up 7.1 percent since April 24.

The stock market's rebound so quickly after the Federal Reserve set off the sell-off in March by raising short-term interest rates may soon have investors wondering if the current rally represents ``irrational exuberance,'' as the Fed chairman, Alan Greenspan, has worried.

``This comes as somewhat of a surprise,'' said Byron Wien, the U.S. investment strategist at Morgan Stanley & Co. ``There was a lot of negative sentiment out there.''

The reasons for the sharp rise were much the same as those behind the rally all last week: a surge in the economy to a 5.6 percent annual growth rate and improving corporate earnings balanced by the lack of signs of inflationary pressure and the belief that the economy was beginning to slow.

This picture led investors to think that the Fed now might have to raise short-term interest rates only once more to nudge the economy down to a pace of 2.5 percent growth and keep inflation in check.

Wien said that because sentiment had been so negative, particularly because it had been feared that the Fed would raise interest rates several more times, the stock market was primed to soar on surprisingly good news. And that, he said, came when bond investors did not sell and push interest rates higher last week even after the government said the economy grew at its fastest rate in nine years in 1997's first quarter.

Added to that impetus was the deficit-reduction agreement reached last week between congressional Republicans and the White House. The deal promises a reduction in the capital gains tax. Such a move should encourage investment in the long term and, in the short term, keep investors from selling until they know what the effective date of the tax cut will be.

Also adding a spark to the market at the end of the day was a report that a jury in Florida had found in favor of the R.J. Reynolds Tobacco Co., a unit of RJR Nabisco Holdings, in a tobacco liability case. The jury decided that the company had not acted negligently and had not made a dangerous, defective product that caused the death of a smoker. RJR Nabisco stock, which had been down 1-1/4, wound up rising 3-1/8, to 32-5/8. Philip Morris, one of the 30 Dow stocks, finished up 4-1/4, at 44-1/8, after being as low as 38.

Along with small-cap stocks, technology issues also did well. The technology-heavy Nasdaq composite jumped 2.6 percent, or 33.91 points, to 1,339.24.

But the sectors that were lagging behind the Dow still have a way to go to catch up. The Nasdaq index is up just 3.73 percent on the year, while the Dow is up 11.88 percent. The Russell small-cap index is still down 0.05 percent for the year despite its furious rally.