NEW YORK -- U.S. stocks posted their biggest gains in more than a week yesterday as signs of vigorous holiday sales helped offset concern that a flaw in Intel Corp.'s Pentium chip could hurt computer companies' profits.
Falling temperatures drove window shoppers into stores and showrooms over the weekend, bolstering shares of the nation's retailers today, analysts said. Oil shares rose amid expectations of stronger demand for heating oil, traders said.
"All the economic figures suggest we should have a good Christmas," said Daniel Barry, an analyst at Merrill Lynch & Co. "If we get some stabilization in the market, these stocks could bounce."
The Dow Jones industrial average rose 27.26, to 3,718.37, its biggest gain since Dec. 2. The average was buoyed by gains in Texaco Inc., Aluminum Co. of America and Sears, Roebuck & Co. Earlier yesterday, the average fell as much as 8.74 points after IBM halted shipments of Pentium-based machines.
The Standard & Poor's 500 index climbed 2.50, to 449.47. Oil companies and retailers led the recovery amid signs that cold weather will boost demand, boding well for the holiday and winter heating season.
Sears rose 87.5 cents, to $44.75; Nordstrom Inc. soared $3.125, to $46.625; and Dayton Hudson added $2, to $78.50. Wal-Mart Stores Inc. went up 75 cents, to $22.25. Kmart Corp. rose 62.5 cents, to $14.375.
"We look for a very good finish for retail sales this holiday period," Merrill's Mr. Barry said. "There is an extra day this year, a Saturday, which is the biggest shopping day of the week, and that alone would add about 1.5 percent to December sales."
Oil stocks, meanwhile, rallied as the cold snap in the Northeast raised expectations of more demand for heating oil, said Jim Benning, a trader at BT Brokerage Inc. "If people think it's going to be colder, they'll push those stocks up."
Texaco rose $2, to $62.50; Chevron Corp. gained 50 cents, to $43.375; Mobil Corp. added $1.875, to $85.125; and Exxon Corp. rose 37.5 cents, to $62.
Advancing stocks were even with decliners on the New York Stock Exchange. Trading was active, with about 285 million shares changing hands on the Big Board.
Signs that U.S. interest rates will hold steady until early next year also helped the stock market on the belief that stable rates could slow the exodus from equity mutual funds.
The Dow Jones utilities average, which set a six-year low of 173.94 on Nov. 22, rallied 2.31, to 181.65, yesterday. Some analysts consider the average a barometer of interest-rate expectations.
The market's gains were tempered by a rout in computer shares and a weak bond market. The yield on the government's 30 1/4 -year bond, which rises as prices fall, ended at 7.92 percent, up from 7.85 percent Friday.
The Nasdaq composite index tumbled as much as 6.57, to 712.48, led by Intel, Microsoft Corp. and Novell Inc. The index recovered to close at 719.12., up 0.07 for the day.
Intel tumbled as much as $4.50, to $58.25, after IBM said it stopped shipment of computers using the Pentium microprocessor.
Dell Computer Corp., one of the biggest makers of Pentium-based computers, slid $1.25, to $39.625; Gateway 2000 Inc. dropped 37.5 cents, to $22.
Paul Weinstein, a computer analyst at PaineWebber Inc., said, "There's the fear that anything associated with personal computers is going to suffer. If you're not selling PCs, then how many keyboards, monitors, disk drives and modems do you need?"
Even Compaq Computer Corp., which initially was insulated because Pentium machines represent a smaller portion of its sales, fell 87.5 cents, to $39.