Stocks Claw Their Way to Gains

The averages reverse early losses to end higher.
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Updated from 4:04 p.m. EDT

Stocks started the day with losses but turned solidly positive by the time trading ended Wednesday as the biotech sector ignited on

Amgen's

(AMGN) - Get Report

earnings and several older technology names goosed the

Dow

.

The Dow Jones Industrial Average rose 42.59 points, or 0.4%, to 10,689.15, a four-month high. The

S&P 500

added 5.85 points, or 0.48%, to 1235.20, and the

Nasdaq

rose 15.39 points, or 0.71%, to 2188.57, both closing at four-year highs. All three indices spent the morning mired with losses, with the Dow going as low as 10,581 and the Nasdaq touching 2158.

About 1.57 billion shares changed hands on the

New York Stock Exchange

, and trading volume on the Nasdaq was 1.99 billion shares. Advancers outpaced decliners 2 to 1.

"We saw some normal profit-taking to start today, but positive underlying momentum took over," said Al Goldman, chief market strategist with A.G. Edwards. "The mood of the market changed two weeks ago, showing investors are thinking a lot more positively. Today was another example of us starting off down and finishing stronger with positive breadth."

While

Intel

(INTC) - Get Report

and

Yahoo!

(YHOO)

closed lower after earnings disappointments, the Dow got a lift from

Home Depot

(HD) - Get Report

,

Boeing

(BA) - Get Report

,

Alcoa

(AA) - Get Report

and

Honeywell

(HON) - Get Report

.

Lower oil prices contributed to the rebound in stocks. Meanwhile, the 10-year Treasury was up 5/32 in price to yield 4.16% following upbeat comments by Alan Greenspan. The dollar was higher against the yen and lower against the euro.

Stronger sectors Wednesday included biotech, health care, materials, airlines, semiconductors and transportation. Technology, energy and consumer staples were among the weaker-performing areas.

Tech stocks led a broad market rally Tuesday, but momentum dissipated after the bell, however, when big earnings gains at both Intel and Yahoo! weren't enough to keep investors happy.

"If you look at the drivers for the

early selloff, it's more company-by-company than broader," said Art Hogan, chief market analyst with Jefferies. "Yahoo! and Intel were disappointing, but it shouldn't affect all of technology, and I think that's how investors are viewing it."

Intel's second-quarter profit rose 16% from a year ago to $2.04 billion, or 33 cents a share, on a 15% jump in revenue to $9.2 billion; both lines were ahead of estimates. One chink in the armor was the slimming of the microprocessor company's margins, which at 56.4% in the quarter were about half a percentage point short of forecasts.

Looking ahead, Intel put third-quarter sales at $9.6 billion to $10.2 billion and gross margins at 60%. Analysts had expected sales of $9.76 billion. The stock was downgraded to neutral on Wednesday morning at J.P. Morgan. Intel lost $1.27, or 4.4%, to $27.44.

"The Street is disappointed with margins," said Brian Williamson, an equity trader with Boston Company Asset Management. "After watching

Advanced Micro Devices

(AMD) - Get Report

perform well last quarter, the Street was awakened by a different tune out of Intel."

Yahoo! posted a sixfold rise in quarterly earnings to $755 million, or 51 cents a share, boosted by a big gain on the sale of investments. Backing that out, the Internet company earned 13 cents a share on a 44% year-over-year rise in revenue to $875 million. The revenue line was $7 million short of forecasts.

For the third quarter, Yahoo! sees revenue of $880 million to $930 million, while for the year it sees revenue of $3.6 billion to $3.7 billion. Both are in line with estimates. Still, shares slipped after hours, dragging down shares of

Google

(GOOG) - Get Report

, which reports earnings Thursday.

Yahoo! fell $4.33, or 11.5%, to $33.40. Google was down $2.10, or 0.7%, to close at $312.

A bright spot on the earnings front was

Motorola

(MOT)

, which continues to ring up market-share gains with its popular new cell phones. Motorola earned $947 million, or 38 cents a share, from continuing operations in the quarter, up from $619 million, or 26 cents a share, last year.

Backing out a charge, Motorola earned 26 cents a share, a penny better than estimates. Sales rose 17% from a year ago to $8.83 million, about $330 million ahead of forecasts. For the third quarter, Motorola expects to earn 27 cents to 29 cents a share on sales of $8.9 billion to $9.1 billion. Analysts had been predicting earnings of 25 cents a share on sales of $8.58 billion. Motorola added 8 cents, or 0.4%, to $19.93.

Amgen's

(AMGN) - Get Report

earnings were also impressive. The biotech giant said second-quarter profit rose 38% from a year ago to $1.03 billion, or 82 cents a share, beating estimates by 10 cents a share. The stock surged higher by $10.65, or 15.1% to $81.17. Amgen's gain helped boost the Nasdaq Biotechnology index, which rose 4.6%.

Oil eased after the weekly Energy Department report on fuel inventories, which showed a 900,000-barrel decline in crude stocks last week. August crude, which is down more than $3 in a week, finished at $56.72 a barrel on Nymex, down 74 cents. Distillate stocks rose 2.3 million barrels while unleaded gas inventories declined by 1.3 million barrels. Analysts expected the inventory report to show a 2.9-million-barrel decline in crude and a 1.5-million-barrel gain in distillates.

On the economic front,

Federal Reserve

Chairman Alan Greenspan presented his semiannual report to the House Financial Services Committee Wednesday. Greenspan's testimony will span two days, ending before the Senate Banking Committee on Thursday.

"The data released over the past two months or so accord with the view that the earlier soft readings on the economy were not presaging a more serious slowdown in the pace of activity," said Greenspan. "Our baseline outlook for the U.S. economy is one of sustained economic growth and contained inflation pressures. In our view, realizing this outcome will require the Federal Reserve to continue to remove monetary accommodation."

"Wall Street to this point has been driven by earnings numbers more than anything Greenspan has said," said Paul Nolte, director of investments with Hinsdale Associates. "He hasn't surprised anyone and once we got that out of the way today markets can focus on what's in front of it. The year has been laid out as far as the Fed goes. The market can now breathe a sigh of relief."

"The key upside risk to inflation is -- no surprise here -- the upturn in unit labor costs," said Ian Shepherdson, chief economist with High Frequency Economics. "Greenspan is not sure how much of this is real and will be sustained but he simply cannot afford to take chances. On the downside, he is concerned about further rises in energy prices but points out that if they merely level off -- they don't need to fall -- then the prospects for aggregate demand appear favorable."

In other earnings news,

Pfizer

(PFE) - Get Report

said second-quarter profits rose 21% from a year ago thanks to a billion-dollar swing in the company's tax obligation. Adjusted for special items, the profit was 46 cents a share, 2 cents higher than the Thomson First Call average consensus. The stock stumbled, down 32 cents, or 1.2%, to $27.06.

J.P. Morgan

(JPM) - Get Report

swung to a second-quarter profit of $1 billion, or 28 cents a share, compared with a loss of $500 million, or 27 cents a share, a year ago. Excluding charges, earnings were $2.3 billion, or 66 cents a share, beating estimates by 2 cents. Shares dipped 5 cents, or 0.1%, to $35.16.

General Motors

(GM) - Get Report

said it lost $286 million, or 51 cents a share, in the second quarter, compared with earnings of $1.4 billion, or $2.42 a share, a year ago. Adjusted for items, the company lost $318 million, or 56 cents a share. Sales slipped 1.6% to $48.5 billion. According to Thomson First Call, analysts expected GM to earn 3 cents a share in the quarter. GM lost 25 cents, or 0.7%, to $36.58.

Kraft

(KFT)

earned $472 million, or 28 cents a share, in the second quarter, down from $698 million, or 41 cents a share, last year. Adjusted earnings of 47 cents a share matched estimates. Kraft shares were down $1.11, or 3.5%, to close at $30.65.

Shares of

Eastman Kodak

(EK)

slipped 2.2% after the company posted a second-quarter loss of $146 million, or 51 cents a share, compared with a profit of $136 million, or 46 cents a share, a year earlier. Revenue rose to $3.69 billion from $3.46 billion last year.

Excluding restructuring costs and one-time items, Kodak's profit was 53 cents a share, missing the average analyst forecast for earnings of 79 cents a share, on revenue of $3.65 billion. Kodak, which had said it would reduce its work force by 15,000 jobs in January 2004, is raising that estimate and now says it plans to slash up to 25,000 jobs. The stock was down 64 cents to finish at $28.10.

Outside of the earnings arena,

Chevron

(CVX) - Get Report

raised its bid for

Unocal

(UCL)

to $17 billion, or about $63 a share, prompting a Unocal endorsement and pressuring China's

Cnooc

(CEO) - Get Report

to improve its competing offer.

Maytag

(MYG)

was sliding after news that China's Qindao Haier Ltd. and its partners Bain Capital and Blackstone have abandoned a $16-a-share offer buy out offer for the company. Maytag was lower by $1.92, or 11%, to $15.61.

Both

Continental Airlines

(CAL) - Get Report

and

Delta Air Lines

(DAL) - Get Report

were moving during Wednesday's session. Continental's second-quarter earnings exceeded analysts' expectations, while Delta named Edward Bastian as chief financial officer. Continental was higher by 1.3% to $15.90, while Delta rose 1% to $3.91.

Overseas markets were mixed, with London's FTSE 100 unchanged at 5200 while Germany's Xetra DAX was up 0.3% at 4784. In Asia, Japan's Nikkei rose 0.2% overnight to 11,789, while Hong Kong's Hang Seng gained 0.2% to 14,603.

To view Gregg Greenberg's video take on today's market, click here

.