OTC stocks lead charge in 4Q. (over-the-counter; fourth quarter) (Stock Watch)

Investor expectations surged and gave Bay State companies a shot in the arm in the fourth quarter of 1992.

The Massachusetts Stock Index, buoyed by renewed interest in small-cap issues, grew 11.1 percent to reach 1,894.9. In contrast, the S&P 500 Index rose 4.3 percent and the Dow Jones Industrial Average grew less than 1 percent.

The NASDAQ Composite Index, which like the Massachusetts Stock Index is mostly composed of smaller firms, rose 16.1 percent.

Not surprisingly, eight of the 10 best performing issues in the Bay State were over-the-counter stocks. The big stars in the fourth quarter ran the gamut from technology and semiconductor stocks to small banks and health care issues.

It was the election of Bill Clinton that sparked the enthusiasm of investors, many of whom were disappointed by a stagnant third quarter. While local companies added an average of 0.2 percent in the third quarter, more than half of them declined in value.

Analysts attributed the mounting excitement in the fourth quarter to improvements in various economic indicators and the psychological effect of having a new president.

"The investment community concluded that Clinton would not be fiscally irresponsible and would have a positive effect on the economy," said H. Bradlee Perry, chairman of David L. Babson & Co., a Cambridge-based investment firm. "This perception helped engender confidence, and the financial markets headed upwards."

Perry said that low interest rates continued to drive money out of bonds and money market accounts and into stocks. The trend peaked in …