Tech Shares Lead Sharp Rally

Updated from 4:05 p.m. EDT

Investors went on a buying spree Monday, hoping for some solid second-quarter earnings reports.

The Dow Jones Industrial Average finished up 146.58 points, or 1.6%, at 9216.79, while the S&P 500 gained 18.80 points, or 1.9%, to 1004.50. The Nasdaq rose 57.79 points, or 3.5%, to 1721.25, eclipsing its intraday high of 1718 hit on May 21, 2002. Treasury prices were lower, with the yield on the 10-year note at 3.73%.

"Are they blowing up another bubble? Possibly," said Al Goldman, chief market strategist at A.G. Edwards. "Internals are very positive, and markets could continue moving up from here, but last time I checked, they haven't changed the rules of gravity."

On a technical note, John Bollinger, founder of BollingerBands.com, said, "Breaking the 1000 level for the S&P 500 has strong psychological significance for the market, but the key level investors should be focusing on is 1015. If it holds above that level, it will give people a great deal of confidence to come back to the market. For the Nasdaq, this has already happened at 1685, so breaking above the 1700 level today just confirms it remains the leader [among indices]."

Some big Nasdaq names had a huge day in the absence of any major company-specific news. Applied Materials(AMAT) rose $1.62, or 10.1%, to $17.63; Altera(ALTR) climbed $1.72, or 10%, to $18.94; Linear Technologies(LLTC) advanced $2.50, or 7.5%, to $35.64; Ericsson(ERICY) gained 65 cents, or 6%, to $11.33; RF Micro(RFMD) rose 34 cents, or 5.7%, to $6.23; and Qualcomm(QCOM) rose $2.44, or 6.5%, to $39.90.

Trading volume was 1.4 billion shares on the Nasdaq, where advancers outpaced decliners by a margin of 2 to 1. More than 1.8 billion shares changed hands at the New York Stock Exchange, with gainers ahead of decliners by a 2-to-1 margin.

Microsoft helped to boost tech shares. Its stock rose 99 cents, or 3.7%, to $27.49 amid a report that it is considering paying shareholders a special dividend of more than $10 billion, according to the Financial Times. Intel(INTC) shares rose $1.05, or 4.8%, to $22.77, and Cisco(CSCO) gained 68 cents, or 3.9%, to close at $18.20.

In earnings news, BMC Software(BMC) said it expects fiscal first-quarter earnings and revenue to come in below its initial estimate, as key customers postponed making business-software purchases. BMC shares ended down $1.32, or 8%, at $15.15.

Schering-Plough(SGP) predicted second-quarter earnings will be lower than Wall Street estimates, citing the loss of Claritin prescription franchise sales after the allergy-fighting drug became available over the counter. Its shares fell 76 cents, or 4%, to $18.30.

Redback Networks(RBAK), a maker of network equipment, said late Thursday it expects weak second-quarter sales because of reduced spending on telecommunications and Asia's corporate contraction. Shares dropped 44 cents, or 48%, to 47 cents.

Meanwhile, GE(GE), which will report results on Friday, was in focus following news that the European Commission had told the company it is concerned about its planned takeover of Finnish medical-equipment maker Instrumentarium(INMRY). GE rose 75 cents, or 2.6%, to $29.30. Instrumentarium shares advanced 83 cents, or 2.2%, to $38.63.

Alcoa(AA), which will report earnings on Tuesday, climbed 35 cents, or 1.4%, to $25.65. Sector watchers were eyeing news that Canada's Alcan(AL) had made a hostile $3.88 billion bid for France's Pechiney(PY). Shares of Alcan lost 57 cents, or 1.8%, to $30.89.