New Year's Rally Endures

Stocks surge late, close higher. The Dow overcomes DuPont's warning.
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Updated from 4:05 p.m. EST

Stocks caught a late-afternoon bid Wednesday and closed higher as buyers fought through some earnings headwinds and kept the 2006 rally intact.

After spending most of the day lower, the

Dow Jones Industrial Average

closed ahead by 31.86 points, or 0.29%, to 11,043.44. The

S&P 500

added 4.49 points, or 0.35%, at 1294.18, and the

Nasdaq

was higher by 11.04 points, or 0.48%, to 2331.36. All three indices closed at four-and-a-half-year highs.

The Dow was pressured early after component

DuPont

(DD) - Get Report

said hurricanes Katrina and Rita would hurt its fourth-quarter results. DuPont now expects to earn 10 cents a share, down from previous guidance of 20 cents to 25 cents a share.

DuPont also cited weak results in crop-protection chemicals, performance coatings and surfaces. The shares fell $1.41, or 3.3%, to close at $41.14.

On the Dow, the loss in DuPont was offset by a 2.8% gain in

Home Depot

(HD) - Get Report

, which a day earlier said it agreed to acquire construction materials wholesaler

Hughes Supply

(HUG)

for $46.50 a share.

With its late lift, the Dow closed above 11,000 for the third straight session. On Tuesday, the average finished in negative territory for the first time this year, but it was down by less than a point after battling back from an earlier drop of 60 points.

For the year, the Dow is up 326 points, or 3%, while the S&P 500 has risen 46 points, or 3.7%, and the Nasdaq has gained 126 points, or 5.7%.

About 1.71 billion shares traded on the

New York Stock Exchange

, with advancers beating decliners by a 9-to-7 margin. Trading volume on the Nasdaq was 2.41 billion shares, with advancers matching decliners.

The 10-year Treasury was down 7/32 in price to yield 4.46%, 3 basis points above the two-year note, while the dollar rose against the euro and fell against the yen. Treasury note yields were on the move after New York

Federal Reserve

President Timothy Geithner gave a speech on monetary policy.

"Expectations of future inflation have fallen, and there appears to be confidence in continued stable, low inflation," said Geithner. "Despite the fact that policymakers can't be completely confident in their assessment of the future path of asset prices, it seems unavoidable that these assessments will factor into policy decisions. This is not to say that central banks should lean against bubbles or against asset price movements themselves."

Oil turned higher after of the Energy Department's weekly update on fuel inventories, with crude for February delivery closing up 57 cents to $63.94 a barrel. The government said crude stocks fell 2.9 million barrels last week, while gasoline stocks rose by 4.5 million barrels and distillate inventories increased by 4.9 million barrels.

To view Kara Wetzel's video take on today's market, click here

.

Stocks were held back Tuesday by a 3.2% decline in

Alcoa

(AA) - Get Report

, which kicked off the fourth-quarter earnings season with disappointing numbers.

Tuesday night, biotech superstar

Genentech

(DNA)

reported a 64% increase in fourth-quarter earnings to $339 million, or 31 cents a share, matching estimates. The shares, which are up 74% since the start of 2004, eased on the report.

However, Merrill Lynch downgraded Genentech to neutral from buy after the biotech company reported that sales of Avastin were below estimates. The firm said it believes the success of Avastin was key to the stock's valuation. Shares lost $4.12, or 4.4%, to finish at $89.22.

The loss in Genetech had the Nasdaq Biotech index down 0.3%. Elsewhere, the Nasdaq Transportation index fell 0.6% and the Nasdaq Bank index was lower by 0.3%. The Philadelphia Semiconductor Sector index added 1.7%, while the Amex Airline index slid 3.8%.

Infosys

(INFY) - Get Report

reported a 28% rise in third-quarter earnings to $143 million, or 51 cents a share, missing estimates by a penny. The outsourcing firm sees 2006 revenue of $2.14 billion, slightly below estimates. Infosys dropped $7.58, or 9.4%, to finish at $73.06.

OSI Pharmaceuticals

(OSIP)

said fourth-quarter U.S. sales of its Tarceva lung cancer drug totaled about $84 million, up 15% from the previous quarter. OSI was lower by 95 cents, or 3.3%, to finish at $28.01.

Moody's Investors Service downgraded

Ford Motor's

(F) - Get Report

long-term ratings to Ba3 from Ba1. Moody's also lowered the ratings on Ford Motor Credit Co. The rating outlook on the Detroit automaker and its credit unit is negative. Ford tacked on 15 cents, or 1.7%, to $8.92.

Merrill Lynch lowered

Yahoo!

(YHOO)

to neutral from buy, saying existing fundamentals limit the stock's potential upside. Merrill put fair value at $46 to $48 a share. Yahoo! slid $1.11, or 2.6%, to $41.87.

Apple Computer

(AAPL) - Get Report

, whose 5% jump Tuesday helped lift the Nasdaq, saw its price target raised to $100 from $86 Wednesday at UBS. The stock added $3.04, or 3.8%, to $83.90.

Prudential Equity Group raised its rating on

Hewlett-Packard

(HPQ) - Get Report

to overweight from neutral weight, citing cost reductions and strong earnings growth momentum. H-P rose 57 cents, or 1.9%, to $31.35.

Shares of

Sandisk

(SNDK)

lost 0.9% after J.P. Morgan cut the flash storage maker to neutral from overweight. The firm cited the stock's current valuation for the downgrade. Sandisk was off 69 cents to close at $76.26.

The economic docket is full for the remainder of the week. On Thursday, reports on the U.S. trade balance for December and last week's initial jobless claims data will be released. On Friday, the producer price index for December and business inventories data for November are expected.

"All those could be market movers, but as an investor the focus should be on any economic report on resource utilization," said Michael Sheldon, chief market strategist with Spencer Clarke LLC. "This is what the Fed stated in their FOMC minutes as something they will be watching. These should provide more information over the next couple weeks."

Overseas markets were mostly higher. London's FTSE 100 was up 0.8% to 5731 and Germany's Xetra DAX was adding 0.7% to 5533. In Asia, Japan's Nikkei rose 1.5% overnight to 16,364, while Hong Kong's Hang Seng added 0.5% to 15,651.