CAPT OF A B727 OVERSHOT INTERMEDIATE CLB ALT DUE TO ACFT EQUIP MALFUNCTION DISTR.

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WHILE HAND-FLYING THE ACFT; CLBING TO OUR ASSIGNED ALT OF 8000 FT; I INADVERTENTLY CLBED THROUGH 8000 FT. AT APPROX 8100 FT THE FO BROUGHT TO MY ATTN THAT WE NEEDED TO LEVEL AT 8000 FT. WE BOTH EASED FORWARD ON THE YOKE AT THE SAME TIME. THE PUSHOVER WAS SMOOTH BECAUSE I DIDN'T WANT TO OVER DO IT AS OUR FLT ATTENDANTS WERE LIKELY OUT OF THEIR SEATS. THE MAX ALT REACHED WAS 8500 FT. WE IMMEDIATELY RETURNED TO 8000 FT. ATC; NEW YORK DEP CTL; WAS NOT NOTIFIED BY US NOR DID THEY MENTION ANYTHING TO US. THE TCASII SHOWED ONLY 1 ACFT WITHIN 10 MI; APPROX 6 MI BEHIND US AND 1300 FT ABOVE US WHEN WE WERE DSNDING THROUGH 8400 FT. WE RECEIVED NO TCASII ALERTS NOR SHOULD WE HAVE. IN MY OPINION THIS EXCURSION WAS THE DIRECT RESULT OF A DISTR CAUSED BY A PROBLEMATIC ADI (ATTITUDE DIRECTION INDICATOR) ON THE FO'S SIDE. IT WOULD SHOW PITCH INFO BUT NOT BANK. THERE WERE NO PREVIOUS WRITE-UPS AND THERE IS NO WAY TO CHK THIS FUNCTION WHILE ON THE GND. NO FLAGS WERE IN VIEW. THE FLT STARTED OUT AS THE FO'S LEG BUT SHORTLY AFTER TKOF HE REQUESTED THAT I TAKE CTL DUE TO HIS ADI PROB. I TOOK OVER THE FLYING DUTIES AND REQUESTED THAT THE FE START TROUBLESHOOTING THE PROB WHEN HE HAD A CHANCE. I ALSO ASKED HIM TO RPT ANYTHING THAT MIGHT PREVENT US FROM CONTINUING TO DEST. AS WE CLBED THROUGH 7000 FT; BOTH THE FO AND I ACKNOWLEDGED THE 1000 FT CALL AS REQUIRED IN OUR OP; '7000 FT FOR 8000 FT.' THE NEXT THING I KNEW IS THE FO SAYING WE NEED TO LEVEL AT 8000 FT AS DESCRIBED EARLIER. I REMEMBER THINKING ABOUT HOW BEST TO HANDLE THE ADI PROB. MY WORKLOAD HAD BEEN INCREASED DUE TO THE FACT THAT I HAD TO BOTH FLY THE ACFT AND MAKE THE DECISIONS. HAD WE HAD AN AUTOPLT WITH AUTOMATIC LEVEL OFF CAPABILITY I WOULD HAVE USED IT. INSTEAD WE HAD AN OLD AUTOPLT THAT REQUIRED THE OPERATOR TO TWEAK A KNOB FORWARD TO LEVELOFF THEN PUSH A SWITCH WHEN THE DESIRED ALT IS REACHED. THIS GENERALLY TAKES MORE THOUGHT THAN JUST HAND-FLYING THE ACFT TO LEVELOFF. IN THE END I BELIEVE IT WAS JUST A MOMENTARY LAPSE OF CONCENTRATION THAT CAUSED THE EXCURSIONS.