US stocks rallied, wiping out early losses, as a report showing unemployment rose faster than expected in April failed to shake investor optimism that the economy and corporate profits will pick up.
Cisco Systems Inc climbed 5.3 percent, leading the rebound, after falling 4.9 percent in the first 10 minutes of trading.
PHOTO: REUTERS
Minnesota Mining & Manufacturing Co, Microsoft Corp and Exxon Mobil Corp boosted the Dow Jones Industrial Average to its highest close since Feb. 6.
"There's confidence the market has stabilized," said John Forelli, who helps manage US$20 billion at Independence Investment Associates in Boston. Investors had expected the economy might lose jobs, he said, based on recent layoff announcements and a surge in new unemployment claims reported yesterday.
The NASDAQ Composite Index rose 45.33, or 2.1 percent, to 2,191.53. The Standard & Poor's 500 Index climbed 18.03, or 1.4 percent, to 1,266.61, with all 11 of its industry groups advancing.
The Dow gained 154.59, or 1.4 percent, to 10,951.24.
For the week, the NASDAQ rose 5.6 percent, erasing last week's 4.1 percent decline. It has gained 34 percent in the past month, paring its year-to-date loss to 11 percent.
The Dow advanced 1.3 percent this week and is up 1.5 percent for the year. The S&P 500 climbed 1.1 percent in the past five sessions, trimming its 2001 loss to 4.1 percent.
Unemployment climbed to 4.5 percent in April while the economy lost 223,000 jobs, the Labor Department said. Economists surveyed by Bloomberg News had forecast a 4.4 percent unemployment rate and creation of 20,000 jobs.
The job losses raised concern that consumer spending would fall, deepening the economic slowdown, and the NASDAQ dropped 2.7 percent in the first 10 minutes of trading before beginning its rebound.
Stocks bounced back because unemployment figures reflect where the economy has been, rather than where it's going, said Miller Tabak & Co trader Peter Boockvar.
During the last recession, the economy bottomed in the fourth quarter of 1990, when US gross domestic product fell by 3.2 percent. Unemployment didn't peak until June 1992, when the jobless rate touched 7.8 percent.
In the 18 months from the bottom of the recession through the peak of unemployment, the S&P 500 posted an annualized return of 19 percent.
Two stocks rose for every one that fell on the New York Stock Exchange, while three advanced for every two that declined on the NASDAQ Stock Market. More than 1 billion shares traded on the Big Board, 13 percent below the three-month daily average.
Cisco, the largest maker of networking gear, advanced US$0.98 to US$19.64. Rival Juniper Networks Inc. climbed US$0.31 to US$61.13, after earlier falling as much as 5.3 percent.
Microsoft, the largest software maker, gained US$2.22 to US$70.75, it's highest closing level since Nov. 9. Microsoft may earn more than expected in its fiscal fourth-quarter, according to Merrill Lynch & Co analyst Henry Blodget. Shares may rise as the company releases new products and investors look for a bottom in the personal-computer business cycle.
Other software stocks also rose as the group led the S&P 500's gain. Veritas Software Corp advanced US$2.52 to US$71.99, Siebel Systems Inc climbed US$1.91 to US$47.90, and BMC Software Inc rose US$1.16 to US$25.41.
Software maker BEA Systems Inc fell US$3.88, or 9.7 percent, to US$35.98 on concern about slowing sales of some programs and tougher competition from International Business Machines Corp. IBM rose US$2.16 to US$115.86.
Minnesota Mining, the maker of Scotch tape, rose US$2.24 to US$119.99, leading the Dow's gain.
Exxon Mobil, the world's largest publicly traded oil company, rose US$1.45 to US$87.55. Among other oil companies, Chevron Corp climbed US$1.65 to US$93.35 and Amerada Hess Corp gained US$0.66 to US$82.65.
RF Micro Devices Inc rose US$4.40 to US$32.42 after J.P. Morgan analyst Edward Snyder said the maker of semiconductors for cellular phones warrants a "premium valuation" because of its growth prospects and relationship with Nokia Oyj, the largest mobile-phone maker. Snyder lifted RF Micro to "buy" from "long-term buy." RF Micro has more than tripled since April 4.
JD Edwards & Co rose US$2.51 to US$10.60 after the maker of business-management software reported fiscal second-quarter profit that topped analysts' forecasts. The company also said it is firing about 8 percent of its workforce to cut costs.
American Power Conversion Corp gained US$1.51 to US$16.51. The maker of devices to protect computer networks from power surges reported first-quarter net income that beat analysts' forecasts.
Charter Communications Inc advanced US$1.22 to US$22.97 after Lehman Brothers Inc analyst Lara Warner said the cable-television operator's revenue and cash-flow growth is accelerating. Warner said Charter is deploying high-speed data services faster than expected. She raised the shares to "strong buy" from "buy." Symbol Technologies Inc dropped US$1.18 to US$26.35. The maker of bar-code scanners said it may not meet growth estimates for the rest of the year because of the slowing economy, though it reported first-quarter results that beat forecasts.
"The deterioration of Symbol's end markets appears too much for the company to weather unscathed," said Lehman Brothers Inc.
analyst Jeffrey Kessler.
Wind River Systems Inc fell US0.66 to US$25.52. The maker of software for consumer electronics said first-quarter profit may be less than forecast because of a slowdown in orders. Wind River is cutting costs and laying off up to 15 percent of its workers.
Procter & Gamble Co was unchanged at US$64.27, erasing a 1.6 percent loss, after people familiar with the matter said it may bid for Bristol-Myers Squibb Co's Clairol unit.
Bristol-Myers will get bids of about US$4 billion for Clairol, which it's selling to focus on drugs, from Procter & Gamble and Japan's Kao Corp, the people said. Procter & Gamble wants Clairol to add hair-color products to its line of shampoos and conditioners. Bristol-Myers gained US$0.77 to US$55.82.
The Russell 2000 Index of smaller stocks rose 7.24, or 1.5 percent, to 492.89. The Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, gained 166.51, or 1.5 percent, to 11,687.27. The market value of US stocks advanced 191.4 billion.
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