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Rally Runs Into Trouble

Bargain-hunting and earnings drive 2005's first surge, but the Nasdaq gives back half of its gain.

Updated from: 4:04 p.m. EST

Investors managed to preserve some of a rare 2005 rally Tuesday after a four-day slide, amid bargain hunting, encourgaing consumer confidence data and mostly positive fourth-quarter earnings reports.


Dow Jones Industrial Average

was the only major index to hold on to most of its gains, closing up 92.95 points, or 0.9%, to 10,461.56, having recently slipped below its 2003 closing level. The

S&P 500

rose 4.66 points, or 0.4%, to 1168.41. The


, which was coming off an 11-week low Monday that put the tech index about 7.7% below its 2004 close, added 11.25 points, or 0.5%, to 2019.95, having been up twice that amount earlier in the session.

Volume on the

New York Stock Exchange

was 1.61 billion shares, with advancers narrowly beating decliners by a ratio of 17-to-16. Volume on the Nasdaq was 1.99 billion shares, with advancers beating decliners 8-to-7.

"Coming into the day, we had an oversold position," said Larry Perruzi, an equity trader with Boston Company Asset Management. "We saw a three-week trend of the market closing on its lows. We had J&J and Merrill Lynch earnings come in very good this morning, setting a tone to get us off to a right start. Once the unexpected consumer confidence number came in, it helped the market rise even higher. "

Other market-watchers echoed concerns about follow-through after the market's worst January performance since 1982.

"There's a lot of bargain-hunting on the news of good earnings," said Peter Cardillo, chief market analyst with S.W. Bach & Co. "We really had good earnings across the board today. We're seeing a technical relief rally, and the question is, can we have some follow-throughs? If we can, maybe the worst of the decline is over."

In other markets, the 10-year Treasury note was down 16/32 in price to yield 4.19%, while the dollar was higher against the yen but lower against the euro. Oil futures closed at their highest level since Nov 29, up 83 cents at $49.64 in Nymex floor trading.

In economic news, the Conference Board said that the consumer confidence reading for January was 103.4, higher than analysts' expectations of 101.3 as well as the 102.3 reading in December. The National Association of Realtors said that existing-home sales for December were off 3.3% to 6.69 million, lower than November's 6.94 million.

In earnings news,

Merrill Lynch


provided a market boost. The Wall Street giant earned $1.2 billion, or $1.19 a share, easily beating analysts' expectations. Shares gained $1.19, or 2.1%, to $57.99.



earned $1.1 billion, or 50 cents a share, lower than the $1.4 billion, or 62 cents a share, recorded a year earlier, due largely to its Vioxx recall on Sept. 30, 2004. The EPS result met expectations. Shares rose $1.10, or 3.7%, to $30.95.

Johnson & Johnson


said fourth-quarter net income was $1.2 billion, or 41 cents a share, down from $1.8 billion, or 62 cents a share, from the same period a year ago. However, on an adjusted basis, the company earned $2 billion, or 67 cents a share. Sales increased to $12.8 billion, up 13.3% from a year ago. J&J beat the Thomson First Call estimate for earnings of 64 cents a share on revenue of $12 billion. Shares added $2.23, or 3.6%, to $63.72.

Sara Lee


reported fiscal second-quarter earnings of 41 cents a share, a 5% increase year over year and higher than the Thomson First Call expectations of 38 cents a share. The company, however, lowered its earnings outlook for 2005, citing weak consumer spending in Europe, price wars between competition and high commodity prices in its meat business. Shares fell $2.05, or 8.2%, to $22.90.



reported a decline in net income for the fourth quarter, down to $278 million, or 28 cents a share. Excluding items, earnings were 37 cents a share. The company had consolidated net sales of $6 billion for the quarter, down from $6.5 billion a year ago. The Thomson First Call forecast was 33 cents a share on revenue of $5.8 billion. DuPont gained 57 cents, or 1.2%, to $46.58.

Silicon Labs


reported fourth-quarter earnings after the bell Monday of $13 million, or 24 cents a share, down 38% from $21 million, or 39 cents a share, a year ago. Revenue for the quarter was $95 million, down from $110 million last year. The Thomson First Call consensus called for 21 cents a share on revenue of $95 million. Brokerages Legg Mason and Piper Jaffray upgraded the stock Tuesday based on valuation. Shares closed up $3.96, or 14.5%, to $31.19.



reported fiscal second-quarter earnings of $134 million, or 69 cents a share, a 41% rise from a year ago. Sales totaled $531.8 million, a year-over-year increase of 29%. The Thomson First Call earnings estimates were 68 cents a share on sales of $527 million. Coach added $1.82, or 3.4%, to $54.64.

Hopkinton, Mass.-based



said fourth-quarter earnings rose to $321 million, or 13 cents a share, from $220 million, or 9 cents a share, from a year ago. The data storage company reported quarterly revenue of $2.36 billion, a 27% increase from last year. The Thomson First Call consensus was 12 cents a share. EMC also gave an upbeat first quarter forecast of 10 to 11 cents a share on revenues of $2.23 billion to $2.25 billion. Shares fell 36 cents, or 2.8%, to $12.48.



posted a fourth-quarter net loss of $34.9 million, or 10 cents a share, compared to net income of $111.5 million, or 33 cents a share, in 2003. Results were slightly lower than the Thomson First Call consensus of a 9-cent loss. Sales dropped 7% to $1.52 billion from the year before. Unisys lost 49 cents, or 6.1%, to $7.56.

In broker action, Smith Barney upgraded



to buy from hold, saying the stock was at a "compelling entry point" for investors. Yahoo! shares rose 11 cents, or 0.3%, to $34.04, having lost almost 9% over the last four trading sessions.

UBS upgraded

Research In Motion


to outperform from market perform, citing a belief that the recent selloff and concerns over competition were unwarranted. RIM gained $3.16, or 4.8%, to $69.28.

Piper Jaffray downgraded shares of

Brocade Communications


to underperform from market perform. The broker cited the company's surprise announcement of a new chief executive, as well as concerns over the growing amount of accounting restatements. Piper Jaffray also lowered its target stock price to $5.50 from $7. Brocade fell 31 cents, or 5%, to $5.83.

Overseas markets finished mostly higher, with London's FTSE 100 rising 0.6% to 4843 and Germany's Xetra DAX adding 0.8% to 4233. In Asia, Japan's Nikkei lost 0.1% overnight to 11,276, while Hong Kong's Hang Seng gained 1.5% to 13,584.