ANYONE WATCHING THE

market lately could be excused for thinking that people have been opening up their New Year's champagne bottles a little early as stocks pop and froth in the millennium's last weeks.

One of the more interesting aspects of the froth has been the gains seen by companies announcing stock splits.

DoubleClick popped more than 15 points, or 7.5%, on Tuesday after it reported a 2-for-1 stock split. Oracle climbed $5.63 on similar news the previous day. Those were almost tame compared with the gains posted by other stocks earlier in the month. On the day of, or just after, news of a split was released, Inktomi jumped $17.69, or 14%; CMGI leapt $21.81, or 11%, and Progress Software surged 19%, or $8.50.

It may not be rational, but market participants, especially day traders and individual investors, just love to hear about stock splits. Internet chat boards buzz with talk and speculation about potential splits and that, in turn, can create its own brand of price momentum. With enough chatter and hype to drive a stock skyward, stock-split rumors can sometimes become self-fulfilling prophecies.

"The public is turned on by it, but it's not logical," says Larry Wachtel, Prudential Securities' famed market analyst. He says the theory behind a split is to bring a stock's price into a more "popular range." And while there's no mathematical reason for it, the new shares with their cheap-sounding prices will typically rise after a split is enacted.

When a company approves a stock split, it essentially breaks each share into a fraction: A 2-for-1 split cuts them in half, a 4-for-1 split cuts them in quarters. For instance, if you own 100 shares of Company X at $10 a share, your total investment equals $1,000. After a 2-for-1 split, you end up with 200 shares at $5 a share. Has the value of your investment changed? No it still equals $1,000. And the shares aren't somehow "cheaper" for new investors, either. In fact, a new buyer will now have to purchase two shares to own as much as you did before with just one.

Logical or not, a split historically gives a stock an immediate boost, as investors feel a less pricey stock will attract more buyers and ultimately boost the share's price. Tara Long, a research analyst at C.E. Unterberg Towbin, says investors tend to interpret a split as being a positive sign from management that the outlook for a company is bright. But in recent years, the impact of splits on stock prices has gone far beyond what the market is used to seeing and what most concede is rational.

"It's been extraordinary in the last 90 days. We haven't seen anything like it in our four-year history," says James Lee, president of Momentum Securities, one of the country's largest day-trading firms. "In economic theory, this should have no impact on the stock. But there's a sense of euphoria."

Some analysts attribute that movement to people like Lee. They say the big jumps really started two years ago when day trading began to take off. One rationale is that day traders find news of a stock split as a signal that a particular stock is going to rise. They then jump on it as a momentum play, forcing the price to move higher than it normally would. More recently, some hedge-fund managers, who are looking to quickly get in and out of market positions, have followed the day traders' lead and are driving post-split prices even higher.

Other analysts give credit, or blame, to the Internet chat rooms where individual investors like to talk up their favorite stocks. When any attractive company starts reaching a price level of $200, whispers of a stock split begin showing up on message boards. Some also say Internet and technology stocks are to blame, since those stocks often post huge price gains even on a normal trading day.

"Now, when it comes to Internet companies, they usually get gains of 10 and 20 points. But they move by 10 and 20 points anyway. You're talking about a different animal," says Wachtel. "The response to the split announcement is becoming larger than life, but that's because there's never been a group that moves like this."

Indeed, not all stocks react the same way after a split. Several blue-chip firms that announced stock splits in December did not see big pops in their stocks. General Electric posted a respectable $4.25 gain, but it only amounted to a 2.8% rise. As for Morgan Stanley Dean Witter's split, the market barely took an interest. It advanced just 94 cents to $128.94.

Momentum Securities' Lee points out that in the case of Internet stocks "a real case can be made that there is a lack of liquidity and a shortage of sellers." Many of these companies didn't float that many shares in the first place creating a lack of inventory that drives up the price. When one of these less liquid companies splits its stock, it puts more shares into the market, creating twice as much liquidity. And that ultimately cuts down on the dramatic price moves. This is especially true for shares in the higher end of the market.

So by that way of thinking, Yahoo!, which is trading around $405, is getting too high and may be a possible near-term split candidate maybe even a 4-for-1 split. Other stocks being talked about on message boards as possible split targets include MedImmune, Motorola and American Express. As for those cheaper postsplit shares, with day traders and small investors likely to jump on them, we may be having this same discussion a few months from now.