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Stocks Rebound as Stimulus Hopes Offset China, U.S. Budget Concerns

NEW YORK ( TheStreet) -- Major U.S. stock averages rose Monday as confidence about continued stimulus support from global central banks offset worries surrounding the Chinese government's five-point plan to curb rising home prices and U.S. budget impasse.

During a conference in Washington Monday, Federal Reserve Vice Chair Janet Yellen gave dovish remarks that were in line with Chairman Ben Bernanke's monetary policy testimony last week

"At present, I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more-rapid growth in employment," she said.

In Japan, the Nikkei Average in Japan finished up 0.4% as Haruhiko Kuroda, Bank of Japan governor-nominee, advocated aggressive measures to overcome deflation.

The Dow Jones Industrial Average rose 38.16 points, or 0.27%, to settle at 14,128. The blue-chip index booked its second highest close ever on Monday.

Breath was positive, with winners outpacing losers 19 to 11. Wal-Mart (WMT), Home Depot (HD), Merck (MRK) and IBM (IBM) were the biggest blue-chip gainers.

The most prominent laggards were Caterpillar (CAT), Alcoa (AA) and United Technologies (UTX).

United Technologies shares retreated by more than 1% after The Wall Street Journal reported the company's Pratt & Whitney subsidiary had broken up an alleged fraudulent-testing scheme by a sister United Technologies unit, affecting tens of thousands of engine parts.

The S&P 500 increased 7 points, or 0.46%, to close at 1,525. The Nasdaq advanced by 12.29 points, or 0.39%, to 3,182.

Advancers edged past decliners by a ratio of 1.3-to-1 on the Big Board and 1.2-to1 Nasdaq. Volumes rose to 3.37 billion shares on the New York Stock Exchange and 1.71 billion shares on the Nasdaq.

Sector action was mixed in the broader market. Health care, transportation, utilities and consumer staples were among the sectors that advanced. Energy, basic materials and capital good were among the sectors that retreated.

For much of Monday, stocks were trading in the red amid concerns that China's property bubble might soon burst.

China's government said it would take a number of measures to curb rising home prices including the potential expansion of home-buying restrictions and property tax increases; higher down payments and increased mortgage rates on purchases of second homes in cities experiencing rapidly- rising housing prices; and the possibility of a 20% tax on capital gains to be levied on the sale of second-hand property.

Economists at Societe Generale published a report saying they think the immediate impact of the move by the Chinese government is going to be a surge in home sales in big cities, as people rush to close deals before the policy is put into place.

Afterwards, property sales will probably drop substantially, but property prices may not as tighter implementation of the capital gain tax will serve to reduce the housing supply. "Nonetheless, slower home sales are very likely to dent the growth momentum and overall liquidity conditions, as suggested by the housing downturn in early 2012," the economists said.

The Shanghai Composite Index declined 3.7% on Monday and Hong Kong's Hang Seng index settled down by 1.5% as property stocks slumped after China's cabinet announced policies to cool property prices. Also, Chinese services data came in soft.

In the U.S., President Barack Obama has signed an order for $85 billion in automatic government spending cuts after Congress and the White House failed to find a compromise on alternative ways to reduce the budget deficit. The sequester cuts are expected to stay effective for several weeks at least while legislators try to hammer out a budget deal.

John Stoltzfus, chief market strategist at Oppenheimer, said that the most positive comment he has about the sequestration is that the austerity will touch the broadest of constituencies and likely generate demands for lawmakers to resort to more thoughtful and cooperative talks sooner than later.

"The real risk to come will likely not be felt sooner but later as the process unfolds and we move beyond the initial steps to the spending cuts that will likely be felt throughout the system and reverberate throughout the economic, revenue and earnings landscape," said Stoltzfus.

Gold for April rose 10 cents to $1,572.40 an ounce at the Comex division of the New York Mercantile Exchange, while April crude oil futures fell 56 cents to $90.12 a barrel.

The benchmark 10-year Treasury was down 9/32, raising the yield to 1.877%. The dollar was down 0.12%, according to the U.S. dollar index.

In corporate news, Apple (AAPL) shares slipped more than 2% after a federal judge ruled that jurors miscalculated nearly half the $1 billion in damages it found Samsung owed Apple for patent infringement.

Stratasys (SSYS) posted fourth-quarter earnings of 40 cents a share on revenue of $71.15 million, versus the average analyst estimate of 38 cents a share on revenue of $52.8 million, as gross margins improved to 57.8% from 56.9% in the fourth quarter.

The company gave earnings guidance of $1.80 to $1.95 a share on revenue outlook of $430 million to $445 million, exceeding current expectations of earnings of $1.86 a share on revenue of $421.07 million, in the first quarterly report since the Stratasys-Objet merger.

Shares were surged more than 7%.

Charles Schwab (SCHW) shares rose more than 2% after Bernstein Research analyst Brad Hintz on Monday said in a report that Schwab could "generate ~$2 per share in normalized earnings, considerably more than the $0.74/share we expect the company to earn in 2013" once interest rates begin to rise.

Yahoo! (YHOO) shares spiked by 3.5% after the Internet company said that it is eliminating seven underperforming products, including its mobile application for BlackBerry smartphones. Also, Barclays raised its recommendation on the stock to overweight from equal weight, explaining that the company's ownership in Alibaba and Yahoo Japan are undervalued.

Radian Group (RDN) shares jumped by more than 7.5% as the mortgage insurer finally started to get respect from sell-side analysts. The company saw an upgrade from Keefe Bruyette & Woods analyst Bose George, less than two weeks after Susquehanna Financial Group analyst Jack Micenko raised his recommendation on the stock.

Hess (HES) shares tacked on 3.5% as the New York-based oil conglomerate plans to split off its oil and gas refining and marketing businesses in a move that will help the company refocus on drilling its shale energy assets while making a big payout to shareholders after years of underperformance.

HSBC (HBC) saw its shares decline after the company said Monday that full-year net profit fell by 17% in 2012 as it paid almost $2 billion in fines to settle a money-laundering case brought by U.S. officials. ADRs were off more than 1.5%.

-- Written by Andrea Tse in New York

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

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