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Nasdaq Hits Highest Level in 18 Months on Tech Rally

So far this year, the Dow is up 15% and the S&P 500 is up 17% as investors bet on a strong economic recovery.

September 09, 2003|From Times Staff and Wire Reports

Stocks rose Monday, resuming last week's upward march, as investors welcomed reports from Wall Street analysts suggesting a rebound in the economy and corporate profits is on its way.

Technology stocks led the rally, pulling the Nasdaq composite index to a closing level not seen since March 2002. The index is up 41% so far this year.

"We know the economics are getting better," with the exception of employment, Peter Dunay, chief market strategist at brokerage Wall Street Access, told Reuters. When quarterly profit results are released, he said, "the hope is that the earnings will show as much strength as the economic data."

Stocks stumbled Friday after a report showed that U.S. employers cut jobs in August at their fastest pace since March. But the trading momentum that has pushed major indexes to highs not seen in at least 14 months is still in play, investors said Monday.

What's more, reports this week on retail sales and consumer confidence may show the world's largest economy is improving even as companies shed workers, Wall Street pros said.

"This rally may not be just a head fake -- it might be the real thing," money manager Sally Anderson of Kopp Investment Advisors told Bloomberg News.

The Dow Jones industrial average rose 82.95 points, or 0.9%, to 9,586.29; the broader Standard & Poor's 500 index gained 10.25 points, or 1%, to 1,031.64; and the tech-laced Nasdaq climbed 30.38 points, or 1.6%, to 1,888.62.

The Wilshire 5,000 index, the broadest measure of U.S. stocks, closed at 10,010 on Monday -- its first close above 10,000 since May 31, 2002.

In active trading, advancers outnumbered decliners by about 5 to 2 on the New York Stock Exchange and 2 to 1 on Nasdaq.

Last week, the Dow racked up its fifth straight week of gains while Nasdaq and the S&P 500 notched their fourth in a row.

So far this year, the Dow is up 15% and the S&P 500 is up 17%.

Stocks have rallied on growing investor expectations of a strong economic recovery.

But analysts caution that the market, having advanced quickly, might be due for a pullback, particularly when companies begin issuing third-quarter earnings warnings later this month.

Friday's Labor Department report showed that companies slashed payrolls by 93,000,

data that underscored fears that tepid employment could undermine the economic recovery.

The S&P 500's members increased profits 9.6% in the second quarter, besting the 7% rise analysts were predicting as of April 1, according to a Thomson Financial poll.

Analysts expect the S&P 500's profits will swell, on average, by 14.8% in the third quarter and 21.5% in the fourth, according to Thomson Financial. Some strategists fear that with hopes so high, investors easily could be disappointed.

Monday's upgrades of IBM and other blue-chip names, however, helped soothe concerns of a slowing rebound.

"One of two things will stop the market rally -- further evidence the labor market is either flat or deteriorating," said Russ Koesterich, U.S. equity strategist at State Street Corp.

The other risk, Koesterich said, was a continued rise in interest rates that could dampen consumer spending.

IBM climbed $2.15 to $89.10 after brokerage Credit Suisse First Boston boosted its rating on the shares.

Merck had the biggest percentage jump in the Dow, climbing $1.60 to $52.60 and helping to lift drug shares higher after Barron's called the sector attractive.

Meanwhile Monday, Treasury yields rose as traders expressed concern about the federal government's growing budget deficit.

The yield on the benchmark 10-year T-note surged to 4.43% from 4.35% on Friday.

"We're talking a, what, $500-billion deficit this year? That's a lot of money in anyone's language," one trader said.

In other equity highlights:

* Drug stocks on the rise included Johnson & Johnson, up 80 cents to $51.30, and Pfizer, up 96 cents to $31.47.

Elsewhere, Watson Pharmaceuticals jumped $2.99 to $44.29 after saying its generic version of pain reliever Percocet had received approval from the Food and Drug Administration.

* Makers of semiconductor gear rose after a Smith Barney analyst said chip makers would buy more factory machines in the second half of 2003 and next year. Applied Materials gained 88 cents to $22.22 and Novellus Systems rose $1.23 to $40.38.

* Wireless equipment maker RF Micro Devices surged $1.45 to $10.46 after raising its fiscal second-quarter outlook, citing improved products and cost cutting.

* U.S.-traded shares of EMI Group were unchanged at $4.60, halting a two-day slide, after the music industry sued 261 people who actively swap music files online, opening a new legal front in the battle against piracy. EMI shares fell last week on concerns that price cuts on compact discs by rival Universal Music Group could hurt industry profits.

* Among the decliners, retail leader Wal-Mart Stores slipped 30 cents to $58.59 after predicting that sales at U.S. stores open at least a year will rise 5% this month, versus 6.9% in August. AT&T eased 31 cents to $22.38.

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