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Bulls Make Their Comeback

Robert Holmes

Wall Street was in full rally mode Tuesday as a rebound in overseas bourses emboldened buyers, giving the major U.S. indices their biggest single-day gains so far this year.

The Dow Jones Industrial Average jumped 157.18 points, or 1.3%, to 12,207.59. The S&P 500 added 21.29 points, or 1.55%, to 1395.41.

The Nasdaq Composite was the strongest gainer, rising 44.46 points, or 1.9%, to 2385.14.

Nearly every Dow component finished in positive territory, led by gains of 2.7% in Citigroup (C), Altria (MO) and American Express (AXP). Only Johnson & Johnson (JNJ) finished in the red.

The tech-heavy Nasdaq, meanwhile, benefited from gains in Apple (AAPL), Google (GOOG), Oracle (ORCL) and Sun Microsystems (SUNW).

Many subdivisions of the market improved. The Amex Oil Index added 1.9%, both the Philadelphia Semiconductor Sector Index and the Philadelphia Housing Sector Index gained 1.7%, and the Dow Jones Transportation Average finished 1% higher.

"This was a relief rally that started overseas and shouldn't be surprising," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "Now we have some short-term support areas and we have something to work off of. We'll continue to trade off the technical picture and the global market environment."

Larry Wachtel, senior market analyst with Wachovia Securities, cautioned that stocks still may not be out of the woods. "We will have to watch out for selling into strength," he said.

Nearly 3.36 billion shares changed hands on the New York Stock Exchange, where advancers beat decliners by a 14-to-3 margin. On the Nasdaq, volume reached 2.14 billion shares, as winners trampled losers 4 to 1.

Stocks had floundered over the past five sessions after a massive selloff a week ago unnerved investors around the world. Despite Tuesday's rally, the Dow is still down 256 points, or 2.1%, for the year. Meanwhile, the S&P 500 has fallen 23 points, or 1.6%, for the year. The Nasdaq has given back 30 points, or 1.2%, for 2007.

Tuesday's climb followed a rally in Asian markets. Earlier, U.S. Treasury Secretary Henry Paulson said during a visit to Tokyo that the global economy is strong and that reforms in China would help mitigate market volatility.

Tokyo's Nikkei rose 1.2%, Hong Kong's Hang Seng added 2.1%, and China's Shanghai and Shenzhen 300 climbed nearly 2%.

The rebound overseas came as the Japanese yen posted the biggest drop against the dollar in three months and had the largest decline against the euro in 17 months.

A rising yen in recent days had prompted market worries that carry trades, in which investors borrow money in low-yielding securities like the yen and invest it in higher-yielding assets, were unwinding. Such an unwinding could present a liquidity crisis.

Markets across Europe mirrored the rise in Asia. Frankfurt's Xetra Dax rose 0.9%, the Paris Cac 40 was higher by 1%, and London's FTSE 100 tacked on 1.3%.

Back in the U.S., Federal Reserve Chairman Ben Bernanke addressed the Independent Community Bankers Association in Hawaii, but he didn't make any comments on the markets or the economy.

Earlier, former Fed Chairman Alan Greenspan told Bloomberg that he sees a one-third probability the U.S. economy will fall into a recession this year. His comments follow remarks last week that while "it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008."

Traders were reviewing Tuesday's economic releases for more clues on the direction of the U.S. economy. The Labor Department said fourth-quarter productivity rose by a revised 1.6%, in line with projections. Unit labor costs, however, doubled expectations, with a 6.6% rise for the quarter.

Ian Shepherdson, chief economist with High Frequency Economics, said he views the data as "another reason to worry about stocks, because rising [unit labor] costs and slower growth mean downward pressure on margins."

Also on the economic docket, the Census Bureau said factory orders fell 5.6% in January, steeper than expectations for a 4% decline. Elsewhere, the National Association of Realtors said pending home sales dropped 4.1% in January.

Treasuries lost ground. The 10-year note was down 9/32 in price, yielding 4.53%, and the 30-year bond fell 13/32 to yield 4.66%.

Commodities reversed some of the previous session's losses. Crude oil was higher by 62 cents to close at $60.69 a barrel at the New York Mercantile Exchange, and gold added $7 to $646.20 an ounce. Natural gas was tacking on 22 cents to $7.47 per million British thermal units.

In corporate news, Citigroup offered to buy Japanese firm Nikko Cordial for nearly $11 billion. Shares of Citigroup ended up $1.33, or 2.7%, to $50.58.

Michael Eisner's investment company Tornante and private-equity group Madison Dearborn Partners said they will acquire Topps (TOPP) for $385 million, or $9.75 a share. The trading-card company's stock jumped 90 cents, or 10.1%, to $9.81.

CBS (CBS) said it will buy back 47 million shares for $1.4 billion under an accelerated repurchase program. The move is part of a plan announced last week. The stock was higher by $1.32, or 4.5%, to close at $30.94.

Shares of Novartis (NVS) finished higher after the Food and Drug Administration gave approval for the company's high blood pressure drug Tekturna. The stock climbed $3.31, or 6.2%, to $56.85.

On the research front, Bear Stearns upgraded Texas Instruments (TXN) to outperform from peer perform. Also, Deutsche Securities upped Dow component Altria to buy from hold.

Texas Instruments added 45 cents, or 1.5%, to $31.35. Altria was higher by $2.21, or 2.7%, to $84.42.