Stocks End With Strong Gains

The Dow jumps 2.9% and the Nasdaq adds 3.3%, boosted by IBM's earnings and a rise in housing starts.
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Updated from 4:04 p.m. EDT

The bulls were up and running again Thursday, wiping out the previous session's losses, as investors cheered a blistering housing market and favorable earnings from

IBM

(IBM) - Get Report

and

Nokia

(NOK) - Get Report

.

The

Dow Jones Industrial Average

closed up 239 points, or 3%, at 8274. The

Nasdaq

gained 40 points, or 3.2%, to 1272, and the

S&P 500

added 19 points to 879.

U.S. Treasury issues sold off, with the 10-year note down 24/32, pushing its yield to 4.14%. The 30-year bond was down 1 10/32, yielding 5.09%.

Before the morning bell, the Commerce Department said

housing starts spiked 13.3% to an annual pace of 1.84 million in September, their highest level in 16 years and up from 1.63 million in August. Building permits rose 3.7% to 1.73 million.

Separately, the Labor Department said

initial jobless claims rose to 411,000 in the week ended Oct. 12, compared with an upwardly revised 389,000 the previous week. Economists were expecting the number of first-time insurance claims to come in at 398,000. Another report showed industrial production fell by 0.1% in September; economists were expecting it to rise 0.1%.

Technology, homebuilding, transportation, photography, financials and tobacco showed the most strength, while gold, defense, steel, restaurants and beverages were weaker. Advertising and department store issues were also under pressure following disappointing earnings from

Sears

(S) - Get Report

and

Interpublic Group

(IPG) - Get Report

.

Overall, market breadth was positive. Advancers were outpacing decliners 2 to 1 on the

New York Stock Exchange, where 1.7 billion shares traded. On the Nasdaq, winners were beating the losers 2 to 1 on volume of 1.7 billion shares.

"This shows that we're in a market not driven by fundamentals," said Brett Gallagher, head of U.S. equities at Julius Baer Investment Management. "We're in a trading market. In this type of environment it doesn't make any sense for individual investors to play along." Gallagher, who remains bearish on the market, added, "I think this sets us up for a significant pullback either at the end of this year or next year."

Dow component IBM posted earnings of 76 cents a share Wednesday night, including the money-losing hard-drive business it's selling to

Hitachi

. Counting only continuing operations, its profit was 99 cents, 3 cents above consensus estimates. Revenue totaled $19.8 billion, a notch above the outlook for $19.7 billion. For the same period last year, IBM posted nearly identical profit of 97 cents on sales of $19.8 billion. In the prior quarter, earnings totaled 89 cents, and revenue was just under $19.7 billion.

"Although I am not surprised that IBM was able to pull a rabbit out of their bag of tricks," said Keith Keenan, vice president of institutional trading at Wall Street Access, "I am shocked that the CFO said their customers are still spending on technology. All evidence points to the contrary."

Merrill Lynch upgraded the stock to buy from hold, with an $82 price target. "We believe the company is clearly trumping its competition, though the weak IT market could limit future upside," Merrill analysts said in a research note. The shares traded up 11.3% to $72.20.

Big tobacco company

Philip Morris

(MO) - Get Report

, also a member of the Dow, reported higher third-quarter earnings that matched analysts' recently lowered expectations. The company posted a net profit of $2.70 billion, or $1.26 a share, up from $2.57 billion, or $1.16 a share last year. The cigarette maker's shares climbed 4.4% to $40.30.

Mobile handset maker Nokia reported third-quarter earnings of 18 cents a share, a penny better than analysts' expectations, and said fourth-quarter earnings would be flat on the year. Its shares traded up 10.7% to $16.60.

United Technologies

reported third-quarter earnings of $1.21 a share, besting Wall Street estimates by 2 cents, and ahead of the $1.12 it earned in the same period a year ago. Shares of United Technologies rose 9.8% to $60.

Photography company

Eastman Kodak

(EK)

raised its financial targets for the remainder of 2002, citing effective cost-cutting measures and production gains. The company said it expects to post a third-quarter net profit of $1.04 a share, blowing away analysts' forecasts for a profit of 73 cents a share. Kodak plans to report third-quarter earnings on Oct. 24. The Dow component's shares jumped 6.9% to $32.44 on the news.

In the airline sector,

Southwest Airlines

(LUV) - Get Report

, the nation's seventh-largest carrier, turned a profit for its fiscal third quarter despite the "recessionary revenue environment the airline industry continues to face." Dallas-based Southwest said it earned 9 cents a share, topping the 11-analyst consensus estimate of 5 cents a share. The stock was recently trading up 8.9% to $14.48. But

Delta Air Lines

(DAL) - Get Report

, the No. 3 U.S. airline, was singing a different tune, saying it would cut up to 8,000 additional jobs, or about 13% of its workforce, as it struggles to regain its footing after being decimated by the events of Sept. 11. Its shares still managed to participate in today's rally, trading up 4.9% to $8.92.

Data storage leader

EMC

(EMC)

posted third-quarter earnings that were in line with expectations, but said that revenue for the current quarter would come in flat as it copes with a continued slump in IT spending. "The IT spending drought got even worse as the third quarter came to a close. Corporations are under-spending their existing budgets, striving to balance expenses in order to offset their own revenue shortfalls," the company said in a press release. The stock finished the session lower by 3.4% at $4.60.

German software developer

SAP

(SAP) - Get Report

saw its shares skyrocket 25.8% to $16.85 after posting earnings that beat expectations. The company withdrew its 5% to 10% revenue-growth projections because of uncertain political and economic conditions, but affirmed its guidance for 21% margins for 2002.

Overseas markets were higher, with London's FTSE 100 gaining 2.8% to 4172 and Germany's Xetra DAX up 4.5% at 3145. In Asia, Japan's Nikkei rose 0.8% to close at 8959, while Hong Kong's Hang Seng closed up 1.2% at 9576.

On Wednesday, the Dow closed down 217 points, or 2.6%, at 8036. The Nasdaq lost 50 points, or 3.9%, to 1232. The S&P shed 21 points to 860.