Stocks rally on bargain hunting, Yahoo! results

AP Business WriterNEW YORK (AP) -- Bargain hunting propelled stocks sharply higher Thursday after better-than-expected results from Yahoo! renewed hopes that business might be improving after all.

Analysts said investors were lured by lower stock prices, particularly in the tech sector, following Wednesday's selloff. Wall Street was also betting on bullish forecasts from Microsoft and IBM, which were releasing earnings after the market closed.

The Dow Jones industrial average closed up 137.77, or 1.4 percent, at 9,850.04, according to preliminary calculations, rebounding from the 211-point loss the previous session.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 11.33, or 1.0 percent, to 1,138.90. The Nasdaq composite index gained 41.37, or 2.1 percent, to 1,985.81.

Although the gains were significant, analysts were quick to note they followed losses in six of the last eight sessions.

"We have a tug of war going on here. The bullish case is that the outlook is brightening. The bears would say that the market ... is extended and a little bit expensive," said Robert Streed, portfolio manager of Northern Select Equity Fund. "What we really will need to resolve this is some broader-based evidence of which companies are actually going to come through and deliver strong earnings."

In trading Thursday, investors bid Yahoo! up $2.25 to $20.12 on better-than-expected earnings and an indication that its ad market appears to have stabilized.

Other tech stocks rose in anticipation of earnings reports. IBM gained $2.65 to $119.90, while Microsoft climbed $1.99 to $69.86 ahead of what Wall Street bet would be positive outlooks.

But the buying was selective. Chipmaker Advanced Micro Devices fell 63 cents to $17.28 despite reporting a smaller-than-expected quarterly loss and saying it anticipates profitability in the second quarter.

The market's response to AMD recalled Wednesday's trading, when investors punished Intel for beating expectations but failing to say a recovery had begun. After falling back Wednesday, Intel rose 82 cents to $34.53 Thursday.

Since recovering from post-terror attack lows last year, the market has moved higher gradually as Wall Street tries to anticipate when an economic recovery will come. But it has also been subject to setbacks because of the continuing uncertainty.

Fourth-quarter earnings reports this month have so far offered a mixed assessment of business' direction -- tempting many investors to preserve their gains from the rally, rather than risk losing them should a recovery be delayed. Wall Street has also gotten into the habit of driving up a stock price on hopes of strong earnings, and then selling on the news to lock in profits.

"There's a lot of desire by investors to want to get back into the market. But we need clarity in earnings to really do that and it hasn't happened," said Barry Hyman, chief investment strategist at Ehrenkranzt King Nussbaum. "Although the numbers are beginning to indicate a recovery, it's still too early to make the case that anything is imminent. That means there will be more volatility like we've been seeing."

Investors appeared to set aside those worries Thursday, though, in favor of capitalizing on the market's most recent losses.

J.P. Morgan Chase rose 65 cents to $36.85, after falling sharply the previous session on dismal earnings. Standard & Poor's rating agency also cut the bank's outlook to negative from stable citing loan and investment banking problems.

Aerospace equipment maker United Technologies soared $4.30, or 7.3 percent, to $63.35 after beating Wall Street estimates despite a 19 percent drop in quarterly earnings.

Kmart lost 4 cents to $1.56 on news its president has left amid a management reshuffling. The troubled retailer's stock has been tumbling on fears it is headed to bankruptcy.

Advancing issues led decliners 3 to 2 on the New York Stock Exchange. Volume came to 1.36 billion shares, compared with 1.46 billion shares Wednesday.

The Russell 2000 index gained 5.97 to 482.39.

Overseas, Japan's Nikkei stock slid 0.5 percent. In Europe, Germany's DAX index advanced 3.0 percent, Britain's FT-SE 100 rose 0.2 percent, and France's CAC-40 gained 1.1 percent.

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