U.S. Stocks Rise For Third Day After Retail Sales Calm Worries

NEW YORK (MarketWatch) -- U.S. stocks on Wednesday stretched gains into a third day, with technology leading the way, as investors played off a surprising rebound in January retail sales after an atrocious December as a reason to buy equities.

"You're clearly seeing buying of stocks that were just beaten to death," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

While a slew of analysts argued that the details in the January retail data were less cheery than the headlines would indicate, Pado took a contrarian view: "It's how it relates to expectations, and it was better than expected."

The Dow Jones Industrial Average rose 133.4 points, gaining 1.1% to 1,2506.8. Twenty-three of its 30 components moved higher, led by American Express Co. , shares of which gained 3.6%.

Blue chip Coca-Cola Co. reported 79% quarterly profit growth and said that it expects to enjoy a "good" 2008, but its shares were among the Dow's laggards, recently down 0.5%.

The S&P 500 Index gained 13.69 points, or 1%, to 1,362.55, while the tech-dominated Nasdaq Composite Index climbed 46.91 points, or 2%, to 2,366.95.

Stocks in the technology sector posted broad gains. Shares of Microsoft Corp. gained 2.3% after reports that Google Inc. was backing off from a possible search-outsourcing deal with Yahoo Inc. , which Microsoft is seeking to acquire.

Shares of Yahoo traded up 0.9% after reports emerged that the online giant is talking to News Corp.
following its rejection of Microsoft's $44.6 billion takeover offer earlier this week. (News Corp. is the parent of Dow Jones & Co. and MarketWatch, the publisher of this report.)

The tech sector also drew strength from late Tuesday's earnings report from Applied Materials Inc. , in which the largest supplier of chipmaking equipment said that profit fell but still came in better than analysts expected. .

Applied Materials stock gained 9.1%.

Shares of First Solar Inc. soared, recently up 28.8%, after the thin-film solar gearmaker's fourth-quarter earnings topped expectations.

MGIC Investment Corp. , a conspicuous decliner, traded down 12.8% after the troubled mortgage insurer said that fourth-quarter losses rose to $1.5 billion.

Volume on the New York Stock Exchange neared 992 million, while more than 1.6 billion shares traded on the Nasdaq. On both exchanges, two stocks gained for each issue on the decline.

Oil slips

On the New York Stock Exchange, crude futures gained 49 cents to end at $93.27 a barrel.

Elsewhere on Nymex, gold futures retreated for a second session, with the benchmark contract for April delivery falling 90 cents to end at $910.2 an ounce, while platinum for April delivery climbed to a new record of $2,001.40 an ounce.

Treasury prices traded mixed, with the benchmark 10-year note down 7/32 to 98 13/32, yielding 3.691%.

In foreign exchange, the dollar rose against most major counterparts. The dollar index, which tracks the performance of the greenback against a basket of six major currencies, was at 76.570, up from 76.473 in late U.S. trading Tuesday.

In a move intended to fuel the consumer spending that drives the U.S. economy, President Bush on Wednesday signed a $168 billion stimulus package that will, among other things, extend rebates to U.S. taxpayers. .

While Americans may have held onto the cash when the market was plummeting and the climate was one of panic, Cantor's Pado thinks the scenario will be different by the time the checks hit the mail. "If you hand me a check in three months when things are calmer, it's as good as gone."

And, unlike many others, Pado sees odds of a recession at zero. As he put it: "I have faith that government officials will throw money at a problem until it goes away."

Details

On Wednesday's data front, the Commerce Department reported a 0.3% rise in U.S. retail sale last month, defying analysts who had expected a 0.3% drop. The latest count follows a 0.4% decline in December, marking the worst holiday-shopping season in years.

While the retail-sales report offered an optimistic headline, analysts said the details left less room for cheer.

Excluding auto and gasoline sales, January's sales were flat, offering "no reason for optimism in this report," wrote Drew Matus, U.S. senior economist at Lehman Brothers, in a note.

The numbers reflect weakness in housing, with furniture sales posting their sixth straight monthly decline, according to Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.

"The numbers were more mixed and not consistent with what the headline numbers were really indicating," said Paul Mendelsohn, chief investment strategist at Windham Financial Services.

Also Wednesday, the Commerce Department said that U.S. business inventories rose 0.6% in December as sales fell 0.5%.

Wait 'til next year

Casting additional light on the slumping housing market, the Mortgage Bankers Association's latest survey found a 2.1% decline in applications last week from the prior week.

In Orlando, economists at the International Builders Show said that the housing market would not stabilize until late this year, at best.

In Europe, shares moved mostly higher, led by auto-sector gains.

By Kate Gibson