Stock Rally Shows Its Finishing Kick

The Dow and Nasdaq break through their 200-day moving averages to seal a huge move higher.
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Updated from 4:15 p.m. EDT

A slight pullback in record-high oil prices sparked a rare buying spree in stocks, pushing the market to its highest levels in nearly a month and prompting speculation that an eight-week downtrend in equities was losing momentum.

The

Dow Jones Industrial Average

closed up 159.19 points, or 1.6%, to 10,117.62; the

S&P 500

added 17.75 points, or 1.62%, to 1113.16; and the

Nasdaq Composite

was up 41.67 points, or 2.17%, to 1964.65. The 10-year Treasury note was up 1/32 in price to yield 4.73%, while the dollar was weaker against the yen and euro.

For the first time in nearly three weeks, both the Dow and Nasdaq were able to close above their technically significant 200-day moving averages of 10,050 and 1952, respectively.

Volume was moderate by historical standards, but the session was heavier than the previous three. More than 1.5 billion shares traded on the

New York Stock Exchange

, with advancers outpacing decliners by about 4 to 1, and nearly 1.8 billion shares changed hands on the Nasdaq, where advancers had the edge by about 7 to 3.

"For the past several weeks, we've really just been spinning our wheels on low volume," said Joe Liro, equity strategist at Stone & McCarthy. "Second-quarter earnings estimates are looking pretty good, but that's offset by uncertainty about what the

Fed's

going to do with interest rates, uncertainty about oil and uncertainty about Iraq."

"The markets are really waiting for a real positive catalyst, and I think that has to happen on the international stage," he added. "If you had to hope for something, I think it would have to be a smooth transition of sovereignty for Iraq. That would be fabulous. Is it going to happen? Probably not."

The ongoing turmoil in the U.S.-led occupation of Iraq, home to the world's second-largest deposit of oil reserves, has fueled oil supply concerns and general uncertainty about the future on Wall Street. President Bush presented his strategy for creating an independent Iraq in a prime-time speech Monday night, amid dwindling support for his handling of the war.

Futures on July crude oil eased in the session but were still near the record highs set Monday, when a pledge by Saudi oil officials to pump more oil failed to allay concerns about tight supplies. Nymex July crude settled at $41.14, down from Monday's close of $41.72, which was the highest in the 21-year history of the contract.

In economic news, the Conference Board said its consumer confidence index rose slightly in May to 93.2 from 93 in April. Economists were expecting a 1-point jump to 94.

The pre-eminence of oil in market psychology was reflected in the volume leaders.

Royal Dutch/Shell

(RD)

closed up 94 cents, or 1.9%, to $50.04,

BP

(BP) - Get Report

gained $1.32, or 2.5%, to $53.79, and

ChevronTexaco

(CVX) - Get Report

added $1.47 cents, or 1.6%, to $91.64.

Elsewhere, doughnut maker

Krispy Kreme

(KKD)

said it lost $24.4 million, or 38 cents a share, in the first quarter, compared with earnings of $12.8 million, or 21 cents a share, last year. The latest period included a loss related to an operation that is being spun off, Montana Mills. Before items, the company earned 23 cents a share, matching estimates, and said full-year earnings will be $1.04 to $1.06 a share, compared with estimates of $1 a share. Its shares gained a cent to close at $19.86.

Friedman Billings downgraded

Charles Schwab

(SCH)

after the discount brokerage giant said it will cut commissions for stock trades in a bid to attract more investors. Its shares finished down 29 cents, or 3%, to $9.26.

In merger news, the U.S. arm of

Deutsche Telekom

(DT) - Get Report

announced an agreement to buy the California and Nevada operations of Cingular for $2.3 billion cash. Cingular, which is owned by

SBC

(SBC)

and

Bellsouth

(BLS)

, had run a network sharing pact with Deutsche Telekom's T-Mobile in the states.

Shares of Deutsche ended up 5 cents, or 0.3%, to $16.19; SBC gave up 14 cents, or 0.6%, to $24.05; and Bellsouth was flat at $25.31.

Overseas markets were mostly lower for a second day, with London's FTSE 100 closing down 0.2% to 4418 and Germany's Xetra DAX down 1% to 3828. In Asia, Japan's Nikkei closed down 1.3% to 10,963, while Hong Kong's Hang Seng bucked the trend and ended up 0.3% to 11,693.

On Wednesday, a report on mortgage applications and refinancings from the Mortgage Bankers Association will hit the tape at 7 a.m. EDT followed by a government report on durable goods orders received by manufacturers in April. Wall Street is expecting orders to dip 0.8% after climbing 5% in March.

Then at 10 a.m. EDT, the Census Bureau is expected to report that new home sales sank to an annualized 1.2 million in April, down from 1.228 million in March.

Earnings results are expected from

AutoZone

(AZO) - Get Report

,

Ralph Lauren

(RL) - Get Report

,

Toll Brothers

(TOL) - Get Report

and

Tech Data

(TECD) - Get Report

.