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Stocks Rebound Sharply; S&P 500, Nasdaq Rise Over 1%

NEW YORK (TheStreet) -- Major U.S. equity indices rebounded Tuesday as investors cheered the growing services sector and took cues from strength in the European markets.

The Dow Jones Industrial Average closed up 99 points, or 0.7%, to 13,979.

Breadth was highly positive, with winners outnumbering losers 28 to two. The most prominent blue-chip advancers were Bank of America (BAC), UnitedHealth (UNH), Hewlett-Packard (HPQ) and JPMorgan (JPM).

Walt Disney (DIS) shares rose 0.7% on Tuesday. The entertainment giant reported fiscal first-quarter earnings of 77 cents a share on $11.34 billion in revenue. Wall Street analysts expected earnings of 76 cents a share on revenue of $11.21 billion after the close.

IBM (IBM) and United Technologies (UTX) shares drifted lower.

The S&P 500 rose 16 points, or 1%, to 1,511.The Nasdaq jumped 40 points, or 1.3%, to 3,172.

The VIX, known as Wall Street's fear gauge, slid below 14.

In the broader market, all sectors were in the green. The biggest gainers were technology, capital goods, consumer cyclicals and financials.

Volumes totaled 3.59 billion shares on the New York Stock Exchange and 2.14 billion on the Nasdaq. Advancers outpaced decliners by a ratio of 2.7-to-1 on the Big Board and 2.6-to-1 on the Nasdaq.

Major U.S. stock averages slumped Monday, dragged down by political uncertainties in Europe and disappointing factory orders here at home.

"Now one day does not make a trend," said Joe Cusick, senior market analyst at optionsXpress, referencing Monday's declines and January's positive returns. Cusick noted that, historically, if January ends in the green, the year typically ends in positive territory.

"Actually there have only been four years in the S&Ps when January showed a positive start that the end of year performance was not better than the January return," he said.

On Tuesday, the ISM Non-Manufacturing Index showed a decline to an as- forecast 55.2% in January from a downwardly revised 55.7% in December, indicating continued growth at a slightly slower rate in the U.S. services sector. The employment index in the non-manufacturing ISM report increased 2.2 percentage points to 57.5%, indicating growth in employment for the sixth straight month.

"Despite the decline in the month, the January [services sector] reading is still a positive one; however, the strength, particularly in the employment component, seems a bit out of touch with the hard data, as the improvement in the non-manufacturing sector employment has been much less impressive as of late than would be implied by the survey," said Yelena Shulyatyeva, a U.S. economist at BNP Paribas.

Survey respondents expressed a measuredly optimistic view on the business climate, with one in the retail trade saying that there seems to be "some stabilization in recent months. Business seems a little more confident, and consumers are participating once again."

European markets traded higher after upbeat eurozone data and a Markit report showing a return to growth of the U.K. services sector in January.

Gold for April delivery fell $2.90 to settle at $1,673.50 an ounce at the Comex division of the New York Mercantile Exchange, while March crude oil futures added 57 cents to close at $96.74 a barrel.

The benchmark 10-year Treasury fell 13/32 to raise the yield to 2.005%. The dollar was off 0.03%, according to the U.S. dollar index.

In corporate news, Yum! Brands (YUM) said Monday that fourth-quarter profit fell 5% and warned that it expects earnings for the year to decline amid a controversy over its chicken suppliers in China. Shares dropped 2.9%.

BP (BP), the energy giant, said fourth-quarter earnings fell 79%, largely because of payouts related to the Gulf of Mexico oil spill. ADRs rose 1.4%.

Kellogg (K), the cereal maker, posted fourth-quarter earnings of 65 cents a share on revenue of $3.6 billion, versus the average analyst estimate of 66 cents a share on revenue of $3.44 billion amid strength in Latin America. Shares increased 0.7%.

Chinese search company Baidu (BIDU) said Tuesday that profit for the quarter ended Dec. 31 rose 36% as advertising spending increased. Shares plunged 10%.

Expedia (EXPE), the online travel agency, is expected by analysts Tuesday to post a profit of 65 cents a share in the fourth quarter on revenue of $929.8 million after the bell. Shares tacked on 3.6%.

Zynga (ZNGA), a Facebook partner, is expected by analysts to post a quarterly loss of 3 cents a share on revenue of $212 million after the market close Tuesday. Shares popped 7% as Bank of America raised its view on Zynga to "buy" from "underperform."

Virgin Media ( VMED) confirmed that it is in discussions with international cable company Liberty Global on a "possible transaction." Shares of Virgin Media surged 18%.

Archer Daniels Midland ( ADM) shares rose 3.3% after the company beat quarterly earnings estimates as it managed to cope with U.S. drought challenges and fully utilized its oilseeds crushing capacity.

J.C. Penney ( JCP) shares added 2.4% following a decline of more than 2.5% after the department store operator moved to file a lawsuit in a Delaware court seeking judgment that it is not in default of certain bonds.

Opexa Therapeutics ( OPXA) shares more than doubled Tuesday after the company struck an agreement with Merck Serono, a division of Germany's Merck, for the development and commercialization of a personalized T-cell therapy treatment for multiple sclerosis patients. Potential payments to Opexa from the option and license agreement could total $225 million.

McGraw-Hill ( MHP ) shares tumbled 11% as the company's Standard & Poor's unit is accused by the Justice Department of defrauding investors with optimistic ratings of mortgage-backed securities and derivatives prior to the financial crisis.

Dell ( DELL ) shares were up 1.1% on Tuesday. After weeks of rumors and speculation, Dell said founder and CEO Michael Dell and Silver Lake Partners are acquiring the company in a $24.4 billion deal.

BlackBerry ( BBRY ) shares jumped 6.9%. The stock was upgraded to "outperform" from "market perform" at Bernstein at the beginning of the week.

-- Written by Andrea Tse and Joe Deaux in New York.

>To contact the writer of this article, click here: Andrea Tse.

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