Stocks Spring Back to Life

Updated from 4:03 p.m. EST

Stocks closed higher for a second day Wednesday, as more solid earnings, bullish remarks from Cisco's ( CSCO) CEO and increasing comfort with Federal Reserve interest rate policy drove a broad-based rally.

The Nasdaq added 33.67 points, or 1.73%, to 1976.76, buoyed by Cisco and positive research on Yahoo! ( YHOO), notching its first back-to-back gains in three weeks. The Dow added 115.63 points, or 1.14%, to 10,300.30, its biggest single-day point gain since Feb. 11; while the S&P 500 rose 13.07 points, or 1.18%, to 1123.77. Since touching a three-month low Monday, the Dow is up more than 200 points.

Trading volume on the New York Stock Exchange approached 1.5 billion shares and almost 1.7 billion shares changed hands on the Nasdaq, still light compared to recent down sessions. Advancers outnumbered decliners by about 7 to 2 on both exchanges.

"I think the Fed's decision was positive news, and the market needed to hear something like that, especially after what loomed over everyone over the past few days like the bombing in Madrid and all those down days," said Robert Pavlik, portfolio manager with Oaktree Asset Management. "Once we passed a certain level on the Dow, with several positive earnings reports, we got out of a bit of a trading range and the short-term technicals kicked in, making people think maybe the correction is over for now."

Tech stocks were leading the charge, with the Philadelphia Semiconductor Index up 2.1%, following encouraging comments from Cisco CEO John Chambers. Chambers predicted increased capital spending in the technology sector over the next two quarters and hinted at the possibility that his company will pay a dividend sometime soon. Shares were recently up 32 cents, or 1.4%, to $23.44.

Yahoo! was contributing to the strength, closing up $2.20, or 5.2%, to $44.77. Smith Barney upgraded the stock to buy and raised its price target to $60 from $50, saying the market is discounting strength in its core cash flow.

Financials also were higher, with the Amex Bank Index gaining 1.2% after Bear Stearns ( BSC) beat quarterly earnings expectations, posting a profit of $2.57 a share in its first quarter compared with a consensus estimate of $2.05. The brokerage kept pace with Lehman Brothers ( LEH), which handily beat estimates Tuesday. Shares of Bear Stearns closed up 71 cents, or 0.8%, to $88.71.

The 10-year Treasury note was trading down 6/32 to yield 3.7%. In a statement following a one-day meeting, the Fed's policymaking arm said the risks to the U.S. economy remain roughly balanced between inflation and disinflation, although it noted that job growth continues to lag the rebound in the broader economy. Traders took the comments to mean no change in interest policy is likely this year.

The assessment was supported by a government report showing that retail inflation slowed in February, meeting Wall Street's expectations. The government's consumer price index rose 0.3% last month, after a 0.5% increase in January. Excluding volatile food and energy prices, the core inflation rate increased more than expected at 0.2%, which matched January's 0.2% rate. Economists were predicting the core index to rise only 0.1%.

Crude oil futures for April delivery rose 70 cents, or 1.9%, to $38.18 a barrel, the highest close since October of 1990 after Iraqi troops invaded Kuwait.

Phillip Roth, chief technical market analyst with Miller Tabak & Co., said traders were putting a positive spin on the Fed's decision and using it as an excuse to bid up stocks. Roth said investors should be undaunted by negative employment numbers and be confident in the economic recovery. "Every statistic says it's a boom. The one thing missing is robust employment growth. I wouldn't let one statistic tell me that this isn't a strong economy. Corporations have been reluctant to hire because they want to build profits. So be it. That's good, or at least it's certainly good for stocks."

The recent slide in interest rates continues to spark the real estate sector. The Mortgage Bankers Association said Wednesday that loan applications spiked 25.6% last week to the highest level since mid-July. Riding the recent decline in average mortgage rates, applications rose 5.6%, while refinancing activity jumped 39.7%.

Despite the frenzy of real estate activity, homebuilding stocks were dilapidated. Lennar ( LEN), having recently announced that it beat consensus estimates by a penny with first-quarter earnings of 84 cents a share, closed down $2.26, or 4%, to $53.75. KB Homes ( KBH), which recently raised its earnings guidance for 2004 by 25 cents, was down 21 cents, or 0.3%, to $79.04. Also, Pulte Homes ( PHM) and Hovnanian Enterprises ( HOV) both closed down over 1%.

In other corporate news, FedEx ( FDX) was up 2% after beating third-quarter earnings estimates. The package courier earned 71 cents a share in the quarter, 5 cents better than estimates, on a 9.3% rise in revenue to $6.06 billion. The shares closed up $3.16, or 4.6%, to $71.59.

Elsewhere, Goldman Sachs analysts weighed in on a trio of Chinese Internet companies. Goldman initiated coverage of Sina ( SINA), Sohu ( SOHU) and Netease ( NTES) with neutral ratings. It had the most praise for Sina, although it raised concerns that too many acquisitions could dilute its core strength.

A report out Wednesday morning says Bank of America ( BAC) will cut 13,000 jobs in its pending merger with FleetBoston ( FBF). Both companies were hit with stiff fines earlier in the week for their role in the mutual fund trading scandal. Separately, the New York Post reported that Time Warner ( TWX) is weighing alternatives for its AOL unit. The media conglomerate could spin off the unit or sell it outright, according to the story.

In currencies, the dollar was weaker against the yen, buying 108.27 yen compared with 108.84 at Tuesday's closing bell. Meanwhile, the euro lost ground on the dollar, buying $1.2237 compared with $1.2264 on Tuesday.

Overseas markets strengthened, with London's FTSE 100 closing up 0.6% at 4457 and Germany's Xetra DAX finishing up 2% to 3897. In Asia, Japan's Nikkei closed 1.7% higher at 11,437, while Hong Kong's Hang Seng ended up 0.3% to 12,975.

Stocks took a circuitous route to a higher close Tuesday after the Federal Open Market Committee signaled that it has no plans to raise interest rates anytime soon. The Dow Jones Industrial Average gained 82 points, or 0.8%, to 10,185, while the Nasdaq Composite rose 4 points, or 0.2%, to 1943.STORY_PAGE_BREAK/>

On Thursday's economic front, the delayed producer price index for the month of January, originally scheduled to be released a month ago, will now be released Thursday at 8:30 a.m. EST, the Labor Department said Wednesday. The release date for the February data, originally scheduled to be released on March 12, remains undetermined. The government has experiencedtechnical problems in switching to a new statistical data base.

Weekly initial jobless claims numbers are due out at 8:30 a.m. EST, with economists forecasting a slight increase to 345,000. That report is followed by the Conference Board's February reading of its leading economic indicators index at 10:00 a.m. EST. The index is expected to increase 0.1%, down from January's 0.5% gain. Then, at 12:00 p.m. EST, the Philadelphia Federal Reserve Bank will report the results of its manufacturing survey March. The index is expected to drop from February's reading of 31.4 to 29.5.

Before the opening bell, earnings releases are scheduled from Barnes & Noble ( BKS), expected to report fourth-quarter earnings of $1.65 a share compared to last year's $1.49 a share; Morgan Stanley ( MWD), expected to report first-quarter earnings of 96 cents a share compared to last year's 82 cents a share; and Williams-Sonoma ( WSM), expected to report fourth-quarter earnings of 84 cents a share compared to last year's 67 cents a share.

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