Tuesday's Market: Nasdaq Powers 3.6% Higher on Signs of Earnings Stability

The Dow also climbed 1%. Lucent and Xilinx reaffirmed guidance and investors rushed into tech.
By Diane Hess ,

(Updated from 4:24 p.m.)

Flickers of light at the end of the earnings tunnel drove the market full-speed ahead today.

The

Nasdaq Composite surged 77.7 points, or 3.6%, to 2233.66; it's up 3.9% for the week. Since last Wednesday, market indices have pedaled higher -- despite negative economic news, the latest being a weak quarterly

productivity and labor costs report released this morning. The reason for the recent rally: signs of improvement in the business outlook.

Communications chipmaker

Xilinx

(XLNX) - Get Report

reaffirmed its first-quarter outlook last night, calming fears about another preannouncement from the semiconductor sector. (

Altera

(ALTR) - Get Report

, the company's principal rival, warned about a sales shortfall in its second quarter last week.)

Separately,

Lucent

(LU)

said this morning that it expects third-quarter sales to be modestly higher. The telecommunications equipment provider also said it's confident about its restructuring plan. "Our job now is to build on the progress we have made and pick up the pace," said Chairman Henry Schacht in a statement. Shares of Lucent jumped 6.1% to $8.49, still down 87% from their 52-week high of $67.19.

"There hasn't been any really negative news since

Sun Microsystems'

warning," said Giri Cherukiri, head trader at

Oak Brook Investments

, which manages $370 million in assets. "People are thinking that the economy and earnings have bottomed." Stocks fell sharply in reaction to Sun's warning last Tuesday, but rebounded later in the week.

The

Dow Jones Industrial Average closed higher by 114.32 points, or 1%, to 11,175.84, led by its technology components.

Microsoft

(MSFT) - Get Report

rose 2.6% to $72.60,

IBM

(IBM) - Get Report

climbed 2.9% to $116.97, and

Intel

(INTC) - Get Report

advanced 4.3% to $298.73. The broader market

S&P 500 rose 16.46 points, or 1.3%, to 1283.57.

Since touching a two-year low of 9,389.48 on March 22, the Dow is up 19%. It's only 4.7% off its all-time high of 11,722.98, which it reached Jan. 14, 2000. The Nasdaq is up 36.3% from its 31-month low of 1638.8 on April 4, but 56% below its record close of 5048.62, hit on Mar. 10, 2000.

Running of the Tech Bulls

While tech bulls ran the show today, investors await further confirmation that the business outlook is improving. "All eyes are on Thursday's meeting at

Intel

," said Matt Johnson, head of Nasdaq trading at

Lehman Brothers

. On Thursday, Intel will release its midquarter update. Over the past three quarters, Intel has warned of revenue shortfalls. Some analysts have forecasted another disappointment.

In its midquarter business update last night, specialty chipmaker Xilinx told analysts that cancellations and delays have slowed considerably. It expects to match first-quarter revenue targets, which call for a 15% to 25% decline compared to the fourth quarter. Xilinx climbed 9.7% to $45.61, while Altera increased 9.8% to $27.25. The

Philadelphia Stock Exchange Semiconductor Index

, which tracks the chip industry, jumped 6.7%.

"When Xilinx reported it lost less orders than expected, it

got people thinking the market has bottomed," said Lance Zipper, managing director of trading at

Brean Murray Foster Securities

. "The market tested its gains shortly after the open. When they held, it gave people encouragement to buy."

In other news,

Amazon.com

(AMZN) - Get Report

said that it was highly confident that the online retailer would turn a pro-forma profit in the fourth quarter. In a meeting with analysts today, chief financial officer, Warren Jensen, said he is optimistic about chances for profitablility for all of 2002, on a pro-forma basis. Shares of Amazon.com fell 2.8% to $16.44; they are up 103% from their 52-week low.

This morning's economic data showed that productivity in the first quarter

softened dramatically. Unit labor costs jumped 6.8%, their biggest gain since the fourth quarter of 1990. A 5.8% gain was expected. High productivity levels in recent years have been credited with allowing the U.S. economy to grow at a rapid pace. In a separate report,

factory orders fell 3% in April, greater than the 2.8% decline that was expected.

Meantime,

OPEC

ministers in Vienna decided not to increase their oil output. On Monday, OPEC promised to match any output shortfall that would result from Iraq's suspension of oil exports. They'll meet next month to decide how to make up the difference; Iraq exports 2.1 million barrels a day of oil. Crude oil futures added 14 cents to $28.27, and shares of Dow component

ExxonMobil

(XOM) - Get Report

tacked on 2.1% to $90.70.

Market Internals

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International

European markets traded higher today. The

FTSE 100

gained 66, or 1.1%, to 5922.5 and the Paris

CAC-40

lifted 84, or 1.5%, to 5516.3. The German

Xetra Dax

rose 63, or 1% to 6240.2.

The euro was lately trading higher at $0.8468. The dollar was trading at 120.11 yen.

Asian markets were also mixed overnight. Tokyo's

Nikkei 225

ended off 0.98%, while Hong Kong's

Hang Seng

closed up 1.85%.

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