WILLOW BAY, CNNfn ANCHOR, MONEYLINE: Tonight, an unexpected inflation scare doesn`t hold back jumping tech stocks: The Nasdaq powers ahead to its eighth record in nine sessions.

STUART VARNEY, CNNfn ANCHOR, MONEYLINE: It`s the biggest package UPS (URL: http://www.ups.com/) has ever delivered: a massive IPO that values the company at more than $81 billion.

BAY: As investors consider the possibility of a Microsoft (URL: http://www.microsoft.com/) breakup, they get the chance to buy the first baby Bill: Microsoft Expedia (URL: http://www.expedia.com/) makes its stock market debut.

VARNEY: And just outside Seattle, Bill Gates speaks to the faithful for the first time since a judge called Microsoft a predatory monopolist.

ANNOUNCER: This the MONEYLINE NEWS HOUR. Reporting tonight from New York, Stuart Varney and Willow Bay.

BAY: Good evening and welcome to MONEYLINE. Investors shake off a potentially frightening inflation report.

VARNEY: And send the Nasdaq to a record high, its eighth in two weeks.

Money simply plowed into technology, helping the Nasdaq to continue to outshine the rest of the market. But the Nasdaq was not the only record setter. Investors clamored for the biggest IPO in American history, from a company that today became an instant blue chip, United Parcel Service (URL: http://www.ups.com/) .

Rhonda Schaffler has the details in today`s "Street Sweep."

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RHONDA SCHAFFLER, CNN CORRESPONDENT (voice-over): Billed as the largest initial public offering in U.S. history, shipping giant United Parcel Service (URL: http://www.ups.com/) delivered.

UPS rocketed to $68, a gain of $18, or 36 percent, above its offering price of 50.

JOE CANGEMI, FRANCES P. MAGLIO: The energy level, the amount of order flow that was entering crowd, and as well as it ran and as efficiently as it ran, it only foresees where the markets are heading.

SCHAFFLER: The feeding frenzy spread to other issues: Expedia, Microsoft (URL: http://www.microsoft.com/) `s online travel arm, gained 281 percent, to more than 53. Communications equipment maker Next Level (URL: http://www.nlc.com/) shot up 153 percent. And iBasis (URL: http://www.ibasis.net/) soared 153 percent.

Despite the impressive performance, some market watchers are wary of the market`s exuberance.

ROBERT BALENTINE, CHAIRMAN, BALENTINE & CO.: Typically, when we see this type of activity in the IPO market, that would signal some type of speculative bubble in the market.

SCHAFFLER: A roaring rally in technology stocks lost steam midway through the trading day. The Nasdaq composite squandered a 61 point lead, closing up nearly 31 points to 3,155. But that was enough to give the index its eight record in nine sessions.

The Dow Jones industrials slipped 19 points to close just below 10,600. That didn`t discourage one of the bull market`s biggest skeptics.

BARTON BIGGS, MORGAN STANLEY ASSET MANAGEMENT: All mood swings by manic-depressives ends in gloom and depression. But in the short run here, I think we could have -- you know, I think the market`s going higher. We could have a meltup.

SCHAFFLER: One stock to watch closely tomorrow, Rite Aid (URL: http://www.riteaid.com/) . The stock was halted at 5 3/8, a new 52-week low, after the company warned investors not to rely on earnings and cash flow guidance released a month ago.

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SCHAFFLER: A mixed bag of inflation data at the wholesale level may have caused a slowdown in the market`s momentum today and spooked jittery investors about the Fed`s intentions at its policy meeting next week -- Stuart.

VARNEY: Rhonda, does the broader market have to wait for its rally maybe until after next week`s Fed meeting?

SCHAFFLER: There`s a lot of debate about that. Some people are saying that investors are waiting for this Fed meeting to be over with. But there`s increasing talk here about the fact that investors might decide to take profits ahead of what`s been the end of a very good year here. So there`s real debate on whether there will be enough after the Fed meeting to bid the market up higher, especially since the gains have been so strong this year.

VARNEY: All right, Rhonda Schaffler at the Big Board. Thanks very much, Rhonda.

BAY: November has been an incredible month for the Nasdaq composite. The index has climbed in nine out of the last 10 sessions, cracking eight all-time highs. The record run has added 353 points, or 12 1/2 percent, to an already impressive return.

In fact, it`s shaping up to be the Nasdaq`s best year since 1991, if it holds onto its gains. So far, it is up 44 percent year-to-date.

VARNEY: Well, you could say definitely that the Nasdaq is the index of the year and crude oil is the commodity. Prices raced higher again today, boosted by comments from the Mexican energy minister who said he would stick to production cuts until mid-year 2000. Also, industry reports show that OPEC is keeping its promises to reduce the world`s oil supply. On top of all of that, light sweet crude rose 44 cents to $24.47 a barrel. Prices have more than doubled since February, when they dropped to their lowest levels in some 12 years.

BAY: Oil prices did pull back a bit last month, keeping a lid on wholesale inflation. The Producer Price Index fell unexpectedly in October. But minus volatile food and energy prices, it rose 3/10 of a percent. The surprisingly strong core rate set off inflation fears in the bond market. The 30-year Treasury lost a quarter of a point in price. The yield tonight at 6.08 percent.

From Chicago, Ceci Rodgers has the details.

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CECI RODGERS, CNN CORRESPONDENT (voice-over): The jump in wholesale prices other than food and energy was almost all due to rising costs for cars and light trucks in the new model year. But bond traders still saw reason to worry about inflation and a possible rate hike next week from the Federal Reserve. Prescription drug prices surged, even more than autos, and costs for goods in the production pipeline also climbed.

ANDREW WALLACE, R.J. O`BRIEN: The Fed made it clear last week that they are paying very close attention to the economic data they see this week. They now have PPI behind them. Perhaps it has made them a little more concerned about inflation.

RODGERS: After rising to the highest levels in two years, interest rates set by the bond market have been falling the past two weeks. Signs of some cooling in housing, and auto sales, plus little bad

news in the way of inflation had many analysts reversing their predictions for a third Fed rate hike this year. Economists are now less certain than ever about the outcome of next week`s Fed meeting.

HARVEY HIRSCHHORN, STEIN ROE & FARNHAM: It`s still a tough call. I still believe it`s less than 50-50. But as you can see by the market action today, I think they thought the odds were even lower and now have marked them up a little bit today.

RODGERS: In the tell-all Greenspan Fed, uncertainty about which way the Federal Open Market Committee will vote is unusual, especially less than a week before the meeting.

(on camera): The Fed`s decision could come down to a key report due out Friday, a favorite of the proponents of the new high-tech economy, worker productivity in the third quarter. Ceci Rodgers, CNN Financial News, Chicago.

(END VIDEOTAPE)

VARNEY: So the obvious big question next for the markets is will the Fed hike rates or hold them steady next week.

Joining us now, Jim Bianco from Chicago. Jim, welcome back to MONEYLINE.

JIM BIANCO, DIRECTOR OF RESEARCH, BIANCO RESEARCH: Thanks for having me.

VARNEY: The question stands: Do we have an inflation problem, and if we do, will the Fed raise rates next week?

BIANCO: I think if you take those two separately, no, I don`t think we have an inflation problem. I don`t think we have had an inflation problem this year. But yes, I do think the Fed will raise rates next week.

VARNEY: Hold on a second, Jim. Hold on a second, Jim. If we do not have an inflation problem, but yes, the Fed you think will raise rates next week, what`s going on here?

BIANCO: Well, they`ve raised rates twice before. And it`s been very hard to pin down whether or not we`ve had an inflation problem to begin with.

I think that it`s more about the stock market, it`s more about nominal growth in the economy. The Fed doesn`t want to be in the position of fostering a boom in the stock market. It`s doing very well without them.

They`ve raised rates. And as you mentioned, the Nasdaq`s up 44 percent this year.

If they were not to raise rates or if they were to refrain or give people the idea that they`re done, they`re afraid it`s going to be a green to speculate and the stock market could launch off into much higher levels.

Maybe it`s not a bubble now, but the fear is if that happens we then definitely would have a bubble as we move forward.

So for that reason and the reason that the stock market is doing so well right now, I think that the odds slightly favor them raising rates next week. But it is a tough call right now.

BAY: A tough call. So if they raise rates next week, is that the end of it?

BIANCO: No, I don`t necessarily think it would be the end of it, because

if we accept the assumption that they`re raising rates because the growth of the economy is very fast, that the stock market`s moving higher, what they would like to see is a moderation in both of those. So if they raise rates and the stock market keeps moving up to new highs, it keeps going, I think it keeps the heat on the bond market, keeps the heat on the Fed to continue to raise rates until things cool down a little bit.

BAY: Let`s say we do see a rate hike next week. How does the market react?

BIANCO: I think as far as stocks go it`ll probably be a relief rally, because the perception within the stock market is going to be that the Fed is done. And that`s widely held right now, that next week is a moot point for them. If the Fed moves or doesn`t move, they`re done.

In the bond market, I think it`s going to come down to the statement that they issue with a rate hike, if they have one. Will it be a hawkish statement, suggesting that there will be more rate hikes, or will it be a dovish statement saying now that they`ve taken back the 75 basis points of cuts last year they`re done? And that will be the key for bond market.

Right now, I`m leaning toward a little bit more of a hawkish statement. And the bond market might have some problems with it. But I don`t think the stock market will.

VARNEY: We`ll be watching it. Jim Bianco, joining us from Chicago, thanks for being with us on MONEYLINE, Jim.

BIANCO: Thank you.

BAY: Much more ahead on MONEYLINE. Time now to check in with some of our other reporters. We begin with Susan Lisovicz -- Susan.

SUSAN LISOVICZ, CNN CORRESPONDENT: Willow, it sounds like a broken record. Yes, the Nasdaq broke a record for the 37th time this year. I`ll tell you why investors can`t seem to get enough of technology.

ALLAN DODDS FRANK, CNN CORRESPONDENT: I`m Allan Dodds Frank. So far, investors do not seem worried that a breakup of Microsoft (URL: http://www.microsoft.com/) could reduce the company`s value. Are they right or is there a downside?

FRED KATAYAMA, CNN CORRESPONDENT: And I`m Fred Katayama. Pfizer (URL: http://www.pfizer.com/) now says it`s considering an unconditional bid for Warner-Lambert (URL: http://www.warner-lambert.com/) and its blockbuster drug Lipitor. And now, Pfizer wants total control over another drug as well.

We`ll tell you what`s on the drawing board at Pfizer -- Willow.

BAY: Thanks, Fred.

VARNEY: Coming up on MONEYLINE, after last week`s legal hammering, Microsoft shareholders stand up as one to show Bill Gates how they feel.

BAY: And Compaq (URL: http://www.compaq.com/) boots up a new computer line, but will it be enough to turn the company around?

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VARNEY: After the bell tonight, Bank One (URL: http://www.bankone.com/) issued its second profit warning in less than three months. The nation`s fourth-largest bank says this year`s earnings will come in between $3.45 and $3.55 a share, below previous estimates.

The problem: continued weakness at the -- at its First USA Bank credit card business. Bank One has tried to overhaul the unit, and took over management of First USA after the chief executive resigned in October. The stock lost $2 in after-hours trading, after being down more than 4 in the regular session.

BAY: It`s been a trying few days for Microsoft (URL: http://www.microsoft.com/) shareholders, as pundits from Silicon Valley, Wall Street and Washington have debated the impact of a harsh antitrust ruling against the company. And while the stock hasn`t suffered serious damage, it wasn`t -- it hasn`t exactly flourished either. Today, Microsoft lost another 1 3/4, and it is now down more than $4 this week.

Shareholders today spoke out about the case at Microsoft`s annual meeting, and greeted the company`s executives with a standing ovation.

Steve Young is there in Seattle, and he joins us now -- Steve.

STEVE YOUNG, CNN CORRESPONDENT: Willow, they came from all over the country, about 2,500 of them.

Mr. Gates is on his home turf, and he`s before an audience that likes his moves. The shareholders heard Bill Gates say that the company would like to settle the case, he mentioned that briefly. He said that they`ll go a long distance to helping meet the government`s needs.

But we got a rather sarcastic Bill Gates also today, who said if we do what the prosecutors say they want, if we come up with development that`s good but somebody else had, they`ll say oh, you can`t do that. If we do something that`s too good or too cheap, they`ll say you can`t do that.

The shareholders got to speak and it was a rather short meeting. All were very appreciative of Gates, the man, and Microsoft (URL: http://www.microsoft.com/) , the company. However, toward the end one shareholder rose and said: I`m proud to be a shareholder in Microsoft, but I was humiliated by the weak legal defense. And some of that was echoed outside as well -- Willow.

BAY: Now I know you mentioned, Steve, that Mr. Gates said something about a settlement. Did shareholders raise that issue? Did they push that issue?

YOUNG: Yes. It did come up once or twice. And interestingly there was not very much reaction from the hall. It did not sound like a very popular idea, although shareholders I talked to said they`d rather see the company settle than be involved in a very, very long fight.

BAY: Steve Young, thank you for that report.

We`ll have more from Steve later in the show, plus we`ll talk to Microsoft (URL: http://www.microsoft.com/) `s chief financial officer, Greg Maffei about Microsoft`s legal dilemma and about today`s spinoff, Expedia (URL: http://www.expedia.com/) .

VARNEY: Now some say that Microsoft`s stock has held up so well because investors think even the worst outcome of this antitrust trial would not be so bad. By most accounts, that would be a forced break- up of Microsoft.

But as Allan Dodds Frank reports in tonight`s "Leading Edge," breaking up is hard to do.

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ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): Would a breakup of Microsoft be a bust for shareholders? Given the company`s current market value, that`s the $445 billion question.

And in the three trading days since the court`s findings, the stock is off about $3, suggesting shareholders are not too rattled.

Under one scenario, the company might be broken into three parts. One handling the Windows operating system, another, applications such as Microsoft Office, and the third dealing with the Internet. Or the operating-system monopoly might be broken by splitting into three similar companies, each with the Windows operating system.

Some investors say splitting Microsoft might not be as successful as other breakups such as the dismantling of AT&T (URL: http://www.att.com/) .

DAVID DREMAN, CHAIRMAN & CIO, DREMAN MGMT.: Microsoft has one core business, which is the Windows, and -- for PCs -- but other than that, there are really no strong businesses, and no really major cash cows. So it seems to me, though, there are many parts that seem exciting but over time they`re probably not going to produce the same kinds of cash vote.

FRANK: Some economists agree.

PROF. NICHOLAS ECONOMIDES , NYU/STERN BUSINESS SCHOOL: Shareholders will be hurt because Microsoft will not be able to be run flexibly as an entrepreneurial company anymore. At the same time, consumers will be hurt, and antitrust laws are there to protect consumers, not shareholders.

FRANK: And if Microsoft did break apart, would the part that lands Bill Gates really be better off?

DAVID NADLER, CHAIRMAN, DELTA CONSULTING GRP.: That company would also have a lot of the baggage that Gates brings in terms of perceptions to the industry, in terms of relationships, and that baggage without the power of monopoly could be a major drag on them.

FRANK (on camera): And some Microsoft watchers wonder whether the company has enough management talent to run several companies; on the other hand, Bill Gates` track record might be enough for investors to ignore any downside.

Allan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

BAY: Coming up on MONEYLINE, we`ll tell you about the day`s biggest market movers.

VARNEY: Plus, with Y2K now less than two months away, some places still are not ready. We`ll be back.

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BAY: Stocks hitting 52-week highs today: British Telecom (URL: http://www.bt.com/) , Sony (URL: http://www.world.sony.com/) , Cisco (URL: http://www.cisco.com/) Systems, Gateway (URL: http://www.gateway.com/) and Lands` End (URL: http://www.landsend.com) .

Tonight`s MONEYLINE movers: Lehman Brothers (URL: http://www.lehman.com/) up nearly 2 3/4. Salomon Smith Barney raised its price target to $85 a share, saying the investment bank is a good value relative to its peers.

Staples (URL: http://www.staples.com/) up 2 1/2. DLJ upgraded the stock and said it is undervalued. Yesterday, shareholders approved a plan to create a separate tracking stock for Staples.com.

Copper Mountain (URL: http://www.coppermountain.com/) Networks up 4 7/8. It plans to split its stock 2 for 1. The company makes products for DSL Communications.

And NextCard (URL: http://www.nextcard.com/) soared 9 3/8, trading at 26 times its daily volume. It will launch a co-branded credit card with Amazon.com (URL: http://www.amazon.com/) . Under the five year deal, Amazon will buy a 10 percent stake in NextCard.

VARNEY: Compaq (URL: http://www.compaq.com/) shares up as well, more than 7 percent, as the company unveils a new line of low-priced business PC`s. The iPaq computer is designed to give office workers easy access to the Internet. Question, will the move be enough to fix what is a broken stock?

Bruce Francis reports.

(BEGIN VIDEOTAPE)

BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): At the end of a disastrous year, you`d think that the last thing that Compaq (URL: http://www.compaq.com/) would want to do is to undercut its bread and butter business PC market with a cut-rate $500 model. But Compaq believes that its new iPaq can help in the war against Dell (URL: http://www.dell.com/) , and the in the war to revive its tarnished reputation. With a far simpler design, fewer parts, and just four different versions, Compaq says the iPaqs will be easier to manufacture. That should make them more profitable than on the typical desktop PC, even at the at $500 price tag. Compaq says computers like the iPaq can make up more than 50 percent of corporate desktop sales in three years.

MICHAEL CAPELLAS, CEO, COMPAQ: The design of this product and the way we`ll manufacture it protects our margin. We actually look to see higher margins on these products, particularly since we`ve really simplified the distribution.

FRANCIS: But analysts are unwilling to raise their ratings on Compaq until the company posts more consistent results.

WALTER WINNITSKI, HAMBRECHT & QUIST: Compaq is looking at ways to reduce their cost. By narrowing down this product to only four separate skews, they can produce these products a lot cheaper and avoid a lot of the costs that have really hurt them in the past.

FRANCIS: A hurt that shareholders have felt most of all. Compaq has plunged from a high of over $50 a share to less than half that now.

ANDREW NEFF, BEAR STEARNS: The key to a turnaround is coming up with neat, innovative products. You look at Apple as class-a example of a turnaround. They need to have stuff that really gets them ahead, and this is neat.

(END VIDEOTAPE)

FRANCIS: Neat, maybe, but not available to consumers just yet. Compaq will be targeting the new models at business customers. But the company says it`s also working on a cheap, simplified PC for the retail market, too -- Stuart.

All right, Bruce Francis reporting.

Thank you, Bruce.

BAY: Checking stories outside the world of business: EgyptAir flight 990`s data recorder, recovered yesterday morning, began to reveal some clues today about the doomed plane. Investigators say the trip was uneventful until the autopilot switched off. Eight seconds later, the plane began what was described as a controlled descent. But explanations to what happened next and why are still to come.

VARNEY: Progress tonight -- rather I should say 51 days to the new year and satisfactory grades tonight for much of the nation in the federal government`s fourth and final report on Y2K readiness. Critical sectors are now fully prepared, the government maintains, including financial services, utilities, air and rail lines, telecommunications and the federal government, including air traffic control and Social Security. But some trouble spots do remain however: Local governments, smaller hospitals and many small businesses have either not started or not completed their Y2K homework.

BAY: Still to come on MONEYLINE: Two California banks fight back, in a battle over ATM surcharges.

VARNEY: Plus: the rising price of doing business in California`s courts. You`re watching MONEYLINE.

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BAY: Stocks hitting 52-week lows today, Rite Aid (URL: http://www.riteaid.com/) , CVS (URL: http://www.cvs.com/) , Omega Healthcare (URL: N/A) , Allied Waste (URL: http://www.alliedwaste.com/) and Pulitzer (URL: http://www.postnet.com/) publishing.

Big banks striking back tonight in a dispute over ATM surcharges in California. Bank of America (URL: http://www.bankamerica.com/) and Wells Fargo (URL: http://www.wellsfargo.com/) say, starting tomorrow, they will block everyone except their open account holders from using their ATM machines in Santa Monica, that after the city banned banks from charging extra fees for non-customers. Bank of America is threatening a similar move in San Francisco unless that city overturns its own ban.

Still to come on the MONEYLINE NEWS HOUR: the Nasdaq`s breakneck pace resumes, with another record shattered.

VARNEY: A record of another kind, at the Big Board -- UPS (URL: http://www.ups.com/) delivers the biggest IPO ever, a ".com" debut wrapped in brown paper.

BAY: And inflation hawks beware, prices rising, not only on Wall Street, but on the docks in Southern California. We`ll explain.

Stay with us.

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BAY: In tonight`s headlines: eight records, nine trading sessions -- the red-hot techs lift the Nasdaq to yet another new high, and there`s just as much sizzle in the IPO market. Investors unwrap the biggest U.S. stock offering of all time from United Parcel Service. And a successful spin-off after a grueling few days for its parent company. Tonight, Microsoft`s chief financial officer, on the debut of Expedia.

VARNEY: First, our top story, the news that investors have almost come to expect: the Nasdaq Composite smashes a record high. Another frenzied day of buying propelled the index 30 points. It finished the day at 3,155, and that by the way is its 37th record of the year. There was not that much enthusiasm for blue-chip stocks, which added to yesterday`s triple-digit losses. The Dow Industrials down 19 to close at 10,597. Volume on the big board was strong: 984 million shares. Declining issues outpaced advancers by an eight-to- seven margin. And there were just 72 stocks that rose to new highs; 115 hit new lows.

BAY: Technology stocks haven`t been this hot since 1991, when the Nasdaq Composite finished up a stunning 56 percent for the year. Of course, that was before the explosion of the Internet, now a force behind the Nasdaq`s winning ways.

Here`s Susan Lisovicz.

(BEGIN VIDEOTAPE)

LISOVICZ (voice-over): The Nasdaq`s 37th record of the year was triggered by better than expected earnings from networking giant Cisco Systems (URL: http://www.cisco.com/) which surged nearly 6 percent on the day. But much smaller companies also contributed to the heavy volume.

The third busiest day ever on the Nasdaq marked the debut of several companies tied into the thriving Internet and telecom sectors.

SCOTT REAMER, SG COWEN: You`re seeing investors wish to participate in an entirely new segment of the economy, particularly the Internet economy, that`s changing the way whole industries in the United States work. There`s been massive market share shifts, shareholder value shifts underway, and investors want to participate in that shift by predicting who the winners and losers are.

LISOVICZ: And the winners are clearly on the Nasdaq, which has rocketed nearly 44 percent year to date, about three times what the Dow has done. But the Nasdaq is weighted by market capitalization, and its five big caps, Microsoft (URL: http://www.microsoft.com/) , Intel (URL: http://www.intel.com/) , Cisco, MCI WorldCom (URL: http://www.mciworldcom.com) and Qualcomm (URL: http:www.qualcomm.com) account for about a third of the entire index.

The Nasdaq counts more than 4,800 companies in all, and most of them are down on the year, an imbalance also seen on the S&P 500.

HARVINDER KALIRAI, IDEA GLOBAL.COM: The markets are sticking with the winners right now, and when the average stock on the -- say on the S&P 500 is actually down on the year, the -- most of the money is going into the sectors that have been performing very well, and that is the technology sector.

(END VIDEOTAPE)

LISOVICZ: And what are the best performing sectors within the best performing index? Computer stocks, for starters, have skyrocketed up 725 percent since 1993. Telecommunications issues have jumped 275 percent. Biotech up nearly 200 percent over the same span -- Willow and Stuart.

BAY: Susan Lisovicz, thanks.

VARNEY: You could call that a rally, couldn`t you?

Now, one drag on the market today: bonds. Treasury prices slipped after some surprising news in the last major inflation report before next week`s Federal Reserve meeting. The 30-year Treasury down 1/4 point, and that pushed the yield up to 6.08 percent, though it`s important to note that the yield has come down nearly a third of a percentage point in the past two weeks. The catalyst for the selling: prices at the wholesale level fell .1 percent in October. But factoring out swings in food and energy prices, prices actually rose a stronger than expected .3 percent.

BAY: Turning now to what is really the mother of all IPOs: United Parcel Service today delivered a record-sized stock offering worth nearly $5.5 billion. The package-delivery service ended 92 years as a private company, going public at $50 a share, an even richer price than expected. The stock jumped 36 percent to 68, a spectacular one-day performance that gives the company a bigger market value than Hewlett-Packard (URL: http//www.hp.com/) .

Peter Viles has the report.

(BEGIN VIDEOTAPE)

PETER VILES, CNN CORRESPONDENT (voice-over): The tightest ship in the shipping business flew in the face of Wall Street wisdom. Who says those multi-billion dollar IPOs can`t jump? Big Brown shares popped $15 at the open.

LINDA KILLIAN, RENAISSANCE CAPITAL CORPORATION: In terms of after-market performance, the bigger deals normally don`t have that much of a real pop afterwards, and that`s not necessarily because of the valuation, but simply because of supply and demand.

VILES: But demand was there for the 109 million UPS (URL: http://www.ups.com/) shares offered, and it leapfrogged ahead of rival FDX (URL: http://www.fdxcorp.com/) in every financial category. UPS has annual sales of $24.8 billion, profits last year of $1.7 billion, and a market value tonight of $81.9 billion; FDX is valued at just $12.8 billion. One reason is UPS`s leadership in residential-package delivery, which is booming due to on-line shopping. Last year, UPS delivered an estimated 55 percent of on-line holiday gifts. Another reason is its powerful brand name.

ARTHUR HATFIELD, ANALYST, MORGAN KEEGAN: I think it`s a little of both. I think this is a great company, and quite honestly, a lot of people I talked to recently were surprised that this is not a public company. It`s a very successful company with a great brand and that`s created a lot of demand for this.

VILES: Among the biggest winners were employees and retirees at UPS. They own two-thirds of the company, on average, that`s 85,000 per worker, but senior managers own much more. Noel Medina has been buying the company stock for two years.

NOEL MEDINA, UPS DRIVER: I enjoyed being a driver, so this is what I like, this is where I will stay as a driver.

VILES: It`s possible there are a few millionaires driving UPS trucks tonight, but it is unlikely. UPS employees did not get the stock at the offering price. They had to buy it in the open market just like everybody else.

Peter Viles, CNN Financial News, New York.

(END VIDEOTAPE)

VARNEY: The UPS offering dwarfs every other U.S. IPO by at least $1 billion. The previous record-holder, Conoco (URL: http://www.conoco.com/) raised $4.4 billion when it was spun off by DuPont (URL: http://www.dupont.com/) last year. That`s followed by Goldman Sachs (URL: http://www.gs.com/) whose IPO was valued at $3.6 billion. The fourth largest IPO debuted only yesterday -- Paul Allen`s Charter Communications (URL: http://www.chartercom.com/) . And another very successful spin-off rounds out the top five: Lucent (URL: http://www.lucent.com/) Technologies, the former AT&T (URL: http://www.att.com/) unit.

BAY: UPS was by far the biggest, but not the most successful stock to go public today. There were three others that didn`t just go up, they more than doubled their offering price, including Expedia (URL: http://www.expedia.com/) , an on-line travel service with a winning brand name behind it: Microsoft (URL: http://www.microsoft.com/) . The software giant spun off Expedia today at $14 a share. The stock soared to 53 7/16. Next Level Communications (URL: http://www.nlc.com/) jumped more than $30 from its $20 IPO price. The company makes technology to speed up Internet access. And Internet telephone company iBasis (URL: http://www.ibasis.net/) went public at $16 a share; it rocketed to 40 1/4.

VARNEY: Coming up, Bill Gates speaks to the faithful about the antitrust case, and Microsoft shareholders respond with a standing ovation. We`ll go to Seattle for the latest on that.

BAY: Plus, Pfizer considers another strategy in its bid for Warner- Lambert. The details and more, when MONEYLINE returns.

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BAY: In tonight`s other "Movers," Inktomi (URL: http://www.inktomi.com) soared nearly 7. S.G. Cowen upgraded the Internet search engine and said it now expects a smaller loss next year. Cisco Systems (URL: http://www.cisco.com/) up 5 1/4, the second most active stock on the Nasdaq. Several analysts raised their earnings estimates for the next two years. Late yesterday, the networking equipment maker beat first-quarter forecasts by a penny.

VARNEY: More bad news though from Rite Aid (URL: http://www.riteaid.com/) : the troubled drugstore chain canceled its planned conference call with analysts and warned investors not to rely on its earlier forecasts for profits and cash flow. The statement followed word that the SEC has contacted Rite Aid about its plan to restate earnings for the past three years. Its shares lost more than 2 1/2 points today. Over the past year, Rite Aid is down more than 89 percent, that on weak profit reports and downgrades in its credit rating.

BAY: In Seattle today, Microsoft shareholders gave Bill Gates and company a rousing welcome. It was the first chance for investors to meet face to face with Microsoft since a federal judge issued his stinging findings of fact.

Steve Young was at the annual shareholders meeting and reports the meeting was decidedly upbeat.

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): In Washington, Microsoft (URL: http://www.microsoft.com/) has been labeled an abusive, bullying monopolist. But at the company`s annual shareholders meeting, Microsoft`s market success was celebrated. Bill Gates said the company is willing to go -- quote -- "a long way to address the government`s concerns," but he said prosecutors are trying to tie the company`s hands in unacceptable ways.

BILL GATES, CEO & CHAIRMAN, MICROSOFT: Is our innovation going to force competitors to work harder? If so, we can`t improve the product that way. Someone might file a lawsuit. Are we providing these features at too low of a price? Are they too good? Then someone might complain.

YOUNG: Shareholders gave Gates and his executive team a standing ovation.

UNIDENTIFIED FEMALE: He made it pretty clear that free enterprise is pretty important to us, and I think we`ve been had.

UNIDENTIFIED MALE: I`m very proud of Microsoft, but I think the government`s wrong, totally wrong.

UNIDENTIFIED FEMALE: I don`t think it`s a monopoly. I think the competitors can -- I think they got competition. And I don`t see them as beating it. I don`t see them as ever splitting them up either.

YOUNG: But one shareholder told Gates Microsoft`s antitrust defense was weak. He said Microsoft was outmaneuvered by the government and he felt humiliated. Later, other shareholders` expressed the same criticism of the company`s legal team.

It wasn`t handled very effectively. It was kind of, you know -- it wasn`t that well.

YOUNG: The company, again, downplayed the impact of the Judge Jackson`s devastating legal opinion by calling it just one moment in a process.

BOB HERBOLD, COO, MICROSOFT: We, naturally, view this as the third inning of a nine-inning game.

(END VIDEOTAPE)

YOUNG: Herbold said the company was heartened Monday when the stock didn`t take much of a hit, the first trading session since the findings of fact. He would not comment on reports that Microsoft used some of its $17 billion to prop up the stock -- Willow.

BAY: Steve, did you hear much concern about breaking up the company?

YOUNG: There were questions from shareholders, but they said it was far too preliminary to even talk about that.

BAY: Steve Young, thank you.

Microsoft`s stock fell again today, down 1 3/4, closing at 87 1/8.

Still coming up: Microsoft`s legal woes not hurting its spinoff today.

VARNEY: The software giant`s online travel unit hits Wall Street with a bang. Microsoft chief financial officer Greg Maffei on the Expedia IPO and the company`s antitrust battle. That`s when MONEYLINE returns.

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VARNEY: It is the top travel site on the Internet, and today, Expedia (URL: http://www.expedia.com/) soared on Wall Street. The Microsoft (URL: http://www.microsoft.com/) spinoff nearly quadrupled on its first day of trading. It ended at 53 7/16. The IPO came as Microsoft talked to its shareholders about the recent ruling. Earlier, I asked Expedia`s chairman, Greg Maffei, also Microsoft`s chief financial officer, it a settlement with the Justice Department is likely.

(BEGIN VIDEOTAPE)

GREG MAFFEI, CFO, MICROSOFT: I really can`t comment on that, because both sides have agreed that we wouldn`t discuss the particulars of any settlement talks. What I can say is, is that Microsoft --and Bill Gates reiterated today -- is very willing and wants to settle this case. We can`t give up our principle that we have the right and the freedom to innovate and improve our products. But short of that, we`ll go a long way to settle this case.

VARNEY: Is the greatest fear here not that the government will suggest the breakup of Microsoft, but the lawsuits that you are going to face from state attorneys general, allegedly injured competitors and private citizens? Is that the greatest threat? You`ve become almost like a tobacco company.

MAFFEI: Well, I don`t want to speculate on lawsuits are the greatest threat. I think the real principle here, the thing that is the most important thing for us, is the right and the ability to improve our products, to give consumers what they want, to add new features, to improve our technologies and create products that they want. That is the most important thing. And anything which limits that really is the greatest threat for us.

VARNEY: The polls that we`re seeing suggest very strong support for Microsoft and for Mr. Gates. What do your shareholders feel? You`re at the shareholders meeting? What do they feel and what do they want you to do?

MAFFEI: Well, I think, in general, we`re very lucky that our shareholders have given us a lot of support, and they want us to fight for the principles. They would love to see this, you know, settled. They`d love to see us move past this, but, in general, I think they support our actions.

VARNEY: Now, one remedy that the government may go for here is, of course, the breakup of Microsoft. And today, you are spinning off a division of Microsoft, Expedia. It`s gone extremely well. If this is a trial run for future spinoffs this, you`d have to say that it`s a pretty good road map, isn`t it?

MAFFEI: Well, I don`t know if it`s a road for future spinoff. We`re very gratified at the success of the Expedia IPO to date. It`s a great site that consumers love. They love the product, and we`re glad to see that translate into some investor demand as well.

VARNEY: It`s a cluttered marketplace, though, isn`t it? You`ve got Priceline (URL: http://www.priceline.com/) , BizTravel.com, airline homepages. Do you expect consolidation in online travel planning?

MAFFEI: Well, I think first, though, it is a cluttered market, Expedia has been very lucky to be the No. 1 site for the last six months running, as measured by most of the Internet measurement statistics. And we`re very gratified with that. Even in a cluttered market, consumers have reached out and found the product. As far as consolidation, I think the opportunity for consolidation certainly exists. We`ve already seen Travelocity and Preview (URL: http://www.previewtravel.com/) , the No. 2 and 3 competitors, announce their mergers, and there may be others. The reality is, though, it`s a very big market that`s growing very fast, and we think there`s a lot of opportunity here.

VARNEY: Can I just return to the shareholders` meeting at Microsoft for a moment? Do you sense any anger on the part of investors about what`s happened to Microsoft?

MAFFEI: I think there`s disappointment among some investors that this case has gone this way and this far, but in general, as I said, I think they`re mostly happy with the work that Microsoft has done, the performance of Microsoft to date.

VARNEY: OK, sir. Greg Maffei, we thank you very much indeed for joining us on MONEYLINE.

Thank you, sir.

MAFFEI: Thank you. Thank you, Stuart.

(END VIDEOTAPE)

BAY: Up next on MONEYLINE: Pfizer considers the next move in its plan to over Warner-Lambert.

VARNEY: And it`s all about an unconditional deal. That story when MONEYLINE returns.

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VARNEY: In other corporate headlines: a management shakeup at Mattel (URL: http://www.mattelmedia.com/) `s troubled software division.

The Learning Company said its chairman and president have both left the firm. Losses at The Learning Company dragged down its third- quarter profits. Mattel stock rose slightly.

Allstate (URL: http://www.allstate.com) is cutting 4,000 jobs, about 10 percent of its work force. The insurer wants to use direct marketing to boost sales on the Internet. Allstate is also planning a $2 billion stock buy-back; that stock rose 5/8.

BAY: An unconditional bid for Warner-Lambert: that could be Pfizer`s next move in its battle with American Home Products.

Pfizer is also interested in controlling an arthritis drug it co- markets with Monsanto.

Fred Katayama has the story.

(BEGIN VIDEOTAPE)

KATAYAMA, CNN CORRESPONDENT (voice-over): Pfizer (URL: http://www.pfizer.com/) wants control of two of the best- selling drugs on the market: the cholesterol drug, Lipitor, and now the arthritis drug, Celebrex.

In its hostile quest for Lipitor and its manufacturer, Pfizer is considering dropping the conditions for its bid for Warner-Lambert (URL: http://www.warner-lambert.com/) that would significantly raise the cost of an acquisition.

JAMES FLYNN, ING BARINGS: Basically, the Warner-Lambert position is that

they haven`t received a bid. They received something that`s contingent upon things that the Warner board doesn`t expect to be removed. And given they don`t expect them to be removed, they don`t feel like they have a bid.

So Pfizer`s is saying, you know, we`re prepared to make everyone agree that this is a real bid.

KATAYAMA: Pfizer says it may drop its suit that challenges two anti-takeover measures: the $2 billion breakup fee, and the issuance of stock options. But dropping them would eat into Pfizer`s future earnings.

SERGIO TRAVERSA, MEHTA PARTNERS: It`s going to be diluted. There is no doubt it is going to be a diluted deal if they do the acquisition through the purchase-accounting method.

KATAYAMA: Traversa estimates that doing so would take a $30 billion bite out of the earnings of a combined Pfizer-Warner-Lambert over the next 20 years, or an average of $1.5 billion each year.

But with investors bidding up Warner-Lambert shares and selling off Pfizer, analysts and shareholders say Pfizer will have to significantly raise its bid. Analysts estimate that Pfizer can up its ante to roughly $105 a share without diluting earnings.

Pfizer may need a diet drug to curb its own appetite for big drugs. It also wants 100 percent control of Celebrex, the arthritis drug it markets with Searle. Pfizer said it would consider buying the manufacturer, Searle, but not Searle`s parent, Monsanto (URL: http://www.monsanto.com/) .

(END VIDEOTAPE)

KATAYAMA: Monsanto would not comment. Analysts expect Pfizer to try to adopt a gentler attitude, given how it has already frayed its relationship with Warner-Lambert. Removing the conditions would be a step in that direction -- Willow, Stuart.

BAY: I thought this was meant to be a rather gentlemanly industry.

KATAYAMA: Well, that`s how the industry has been billed. But you`ve got this great relationship with Warner-Lambert, and plus, earlier on we had Glaxo (URL: http://www.glaxowellcome.co.uk) and Wellcome. And that wasn`t exactly a welcome bid, on the part of Wellcome.

BAY: Fred Katayama, thank you.

VARNEY: All right. And up next, it`s costing more and more to import goods through California`s port and we`re going to tell you why.

BAY: Plus, "AHEAD OF THE CURVE": some of what you need to know tonight before the markets open tomorrow.

You`re watching MONEYLINE.

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VARNEY: Checking some of what could move the markets tomorrow: more profit reports. Expect results from Dell Computer (URL: http://www.dell.com/) , The Gap (URL: http://www.gap.com/) and Nordstrom (URL: http://www.nordstrom.com/) . Also watch the share price of Bank One (URL: http://www.bankone.com/) . After the bell, it warned that 1999 results will fall short of estimates. It blamed weakness at its First USA credit-card unit. Its stock fell more than $2 in late trading.

Tomorrow of course is Veterans Day. The bond market is closed but the stock market will be open for trading.

BAY: Finally tonight, with Wall Street fretting again over a possible rate hike, the Fed need look no further for signs of inflation than the ports of Southern California.

Casey Wian reports from Long Beach.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN CORRESPONDENT (voice-over): Costs at the ports of Long Beach and Los Angeles, the nation`s busiest, are soaring. Dock workers recently won an 8 percent raise. The state will soon charge ships a $1,000 each as part of an environmental program, and both ports have hiked their fees by 10 percent to finance expansion.

Shipping lines have responded with huge planned increases in their per-container rates, double the price in some cases.

DON WYLIE, PORT OF LONG BEACH, CALIFORNIA: Even with the increased rates, let`s say that a general rate for an eastbound 40- foot container is about $2,800. Based on a 40-foot container carrying 12,000 pair of shoes, that`s only 23 cents per pair of shoes. The transportation costs relative to the retail price of most consumer goods is insignificant.

WIAN: Shipping lines say their rates are just recovering from the Asian financial crisis, and from an influx of new competition willing to lose money to gain market share.

ROBERT KLEIST, EVERGREEN AMERICA: On inbound business, imports, the rate is beginning to approach a level that we would consider to be reasonable and satisfactory. On outbound business, American exports have not kept up with imports by any means.

WIAN: That means many containers return to Asia empty. Those with cargo fetch as little as $150 a piece, barely enough to cover the cost of loading them onto a ship. The imbalance is squeezing shipping line profits, and their planned price hikes may not stick.

JACK KYSER, L.A. ECONOMIC DEVELOPMENT CORP.: It`s going to be tough to pass through a lot of those costs because right now most retailers, most manufacturers, don`t have a lot of pricing power in the domestic market.

But definitely there are inflationary whiffs all around out there.

WIAN: So far, rising costs have not slowed the flow of goods through Southern California`s ports.

(on camera): This year, container traffic is on pace to increase by about 10 percent over 1998, which was a record year.

Casey Wian, CNN Financial News, Long Beach, California.

(END VIDEOTAPE)

BAY: That is MONEYLINE for this Wednesday. I`m Willow Bay.

And I`m Stuart Varney. Thanks for joining us. Good-night from New York. "CROSSFIRE" is next.

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