Stocks rise on hopes for recovery

US stocks rose for a third day on Friday as financial shares rallied on optimism a rebound in investment banking and trading will lift brokerage profits.

Citigroup Inc and Morgan Stanley Dean Witter & Co gained.

Alcoa Inc, Intel Corp and other companies expected to benefit most from an economic recovery boosted the Standard & Poor's 500 Index, helped by a government report that showed job losses are slowing. Pfizer Inc and Johnson & Johnson fell, limiting the index's advance.

"People are getting out of health-care and other defensive stocks and into technology and other things that are more economically sensitive, with hope for the 2002 economic recovery," said Scott Pape, who helps manage US$1.5 billion at CastleArk Management in Chicago.

The S&P 500 rose 7.24, or 0.6 percent, to 1,172.51. The NASDAQ Composite Index gained 15.11, or 0.7 percent, to 2,059.38. The Dow Jones Industrial Average advanced 87.60, or 0.9 percent, to 10,259.74.

For the week, the NASDAQ gained 3.6 percent, the S&P 500 1 percent and the Dow 1.2 percent. The NASDAQ has surged 45 percent from a three-year low on Sept. 21 on optimism 11 interest-rate cuts by the Federal Reserve will lift the economy and boost corporate profits.

All three benchmarks are at their highest levels since August.

Almost 1.5 billion shares traded on the New York Stock Exchange, 17 percent more than the three-month daily average.

Three stocks rose for every two that fell on the Big Board and the NASDAQ Stock Market.

Optimism the economy may be recovering got a boost from a Labor Department report that job losses were less in December than in the prior three months. Payrolls dropped by 124,000 last month after falling 371,000 in November and 448,000 in October. That may suggest the worst of company firings is over, investors and analysts said.

"The first three trading days of the year the market is telling us its willing to operate on blind faith that the economy will recover strongly," said Philip Orlando, chief investment officer for Value Line Asset Management, which oversees US$6 billion. "There ought to be a question about that being true."

Still, Orlando, who invested defensively in health-care and consumer-staples shares last year, said he now is looking to buy technology and telecommunications stocks that have begun to show evidence of improved sales or profits.

The last time the S&P 500 rose during the first week of a year was in 1999, when it gained 20 percent for the year.

Brokerage shares climbed as investors speculated their profits, which had their biggest decline in seven years last year, will recover after a slump in merger advisory and underwriting business.

Prudential Securities analyst David Trone said that brokerage revenue will rise this quarter and their shares should advance 20 percent to 30 percent this year. Trone raised Merrill Lynch & Co, Goldman Sachs Group Inc and Morgan Stanley to "buy" from "hold." He raised his profit expectations for Bear Stearns Cos. and Lehman Brothers Holdings Inc. and maintained his "hold" rating on both stocks.

Merrill gained US$2.98 to US$56.64, Goldman advanced US$4.30 to US$96.75, Morgan Stanley surged US$2.82 to US$59.64, Bear Stearns rose US$2.50 to US$62.10 and Lehman gained US$2.55 to US$69.01.

Discount brokers Charles Schwab Corp and E*trade Group Inc led the Amex Securities Broker Dealer Index to a 5.1 percent gain, as all 12 members advanced. Schwab climbed US$1.24 to US$18.09 and E*Trade jumped US$1.19 to US$12.29.

Citigroup, parent of the Salomon Smith Barney brokerage, gained US$0.95 to US$52.

Alcoa, the biggest US aluminum maker, rose US$1.16 to US$37.30.

Caterpillar Inc, the largest maker of earthmoving equipment, jumped US$1.53 to US$53.86. International Paper Co, the largest US paper producer, gained US$1.20 to US$41.90. DuPont Co rose US$1.07 to US$45.12, Dow Chemical Co jumped US$1.31 to US$36.75.