Upbeat Reports Lift Stocks, Mood on Wall Street

Wall Street bounced back Thursday after a drop in new claims for jobless benefits renewed hopes that the economy’s pace might be picking up.

The technology sector was heartened by upbeat reports from software maker SAP and networking firm Foundry Networks.

The Dow Jones industrial average, which slumped 145.28 points on Wednesday, surged 180.87 points, or 2.1%, to 8,776.18.

The Nasdaq composite rose 37.39 points, or 2.7%, to 1,438.46.

In heavy trading, winners topped losers by 12 to 5 on the New York Stock Exchange and on Nasdaq.

In other markets, Treasury bond yields shot higher and oil prices rebounded after falling for three days.

Wall Street’s gains left the Dow up 5.2% in the first six trading days of the year, Nasdaq up 7.7% and the Standard & Poor’s 500 up 5.4%.

The first week of trading in January historically has been viewed as indicative of the trend for the year. Since 1950, a net gain in the S&P; 500 in the first five days has been followed by a gain for the year in all but four years (1966, 1973, 1990 and 1994), according to Stock Trader’s Almanac.

Investors took comfort Thursday in the Labor Department’s report that new claims for unemployment benefits fell by a seasonally adjusted 19,000 to 389,000 last week, offering hope that layoffs might be stabilizing.

“The 400,000 mark is such a threshold number to traders, there’s a psychological impact when it falls below that,” said Robert Froehlich, chief investment strategist for Deutsche Asset Management in Chicago.

Optimism about the tech sector was stoked by separate reports from software giant SAP and Foundry Networks that their fourth-quarter sales beat expectations. Both reports suggested that spending on tech equipment could be improving.

SAP gained $1.66 to $24.15. Foundry soared $1.28 to $9.43.

Some analysts said the broader rally was underpinned by many investors’ expectation that the Bush administration’s economic-stimulus plan, unveiled Tuesday, will help the economy and the market.

“The tax proposal is, overall, making people feel better,” said Kurt Brunner, who helps oversee $1.4 billion for Swarthmore Group in West Chester, Pa.

The plan’s centerpiece is the elimination of taxes on cash dividends companies pay shareholders. That would be expected to help stocks that pay large dividends. But under a revision to the original proposal, companies that retain earnings instead of paying them as dividends -- such as major tech firms -- also could benefit because they would be able to give shareholders a tax credit against any future capital gains on their shares.

As stocks recovered Thursday some investors dumped Treasury bonds, sending yields higher. The 10-year T-note yield rocketed to 4.17% from 4.02%, and now is the highest since Dec. 3. Heavy new issuance of corporate bonds also lured investors at Treasuries’ expense Thursday, analysts said.

Crude oil futures in New York rose $1.43 to $31.99 a barrel after falling early in the week from a two-year high.

Analysts said the stock market’s big test starting next week will be how investors react to fourth-quarter corporate earnings reports. Aluminum giant Alcoa had helped spark Wednesday’s sell-off after it reported a surprising loss. But overall, blue-chip companies’ earnings are expected to rise in the quarter.

Among the day’s highlights:

* Tech shares rallying included IBM, up $2.81 to $87; Oracle, up 89 cents to $13.01; Cisco Systems, up 51 cents to $14.95; and Veritas Software, up $1.30 to $20.03.

* Retail shares were strong despite mixed reports on December sales. Kohl’s jumped $4.45 to $57.35, Sears gained $2.24 to $27.29 and Abercrombie & Fitch surged $3.63 to $26.03.

* Among blue-chip firms paying above-average dividends, Eastman Kodak rose $1.03 to a 52-week high of $40.05, DuPont added 71 cents to $44.29 and utility Dominion Resources was up 39 cents to $56.84.

Market Roundup, C5-6