NEW YORK -- U.S. stocks rebounded yesterday, wiping away two days of losses, amid prospects for a year-end rally and optimism that corporate profit growth will continue to expand next year.
Gains in software, semiconductor, retail, drug and financial stocks fueled the advance.
"I don't think the real world has changed that much, but people are buying on hopes of a year-end rally and reinvestment demand," said Michael Metz, chief investment officer at Oppenheimer & Co. "You have something of a seller's strike."
The Dow Jones industrial average jumped 34.65, to 3,801.80, recouping most of the 40.19-point loss registered over the first two days of the week. The average rose as high as 3,817.62, a 50.47-point gain that took it to its highest intraday level since Nov. 21. It also triggered the New York Stock Exchange's "downtick rule" -- curbing some trades in connection with stock-index arbitrage -- for the first time since Oct. 28.
Three rounds of computer-guided "buy" and "sell" programs contributed a net 21.2-point gain to the average, according to Birinyi Associates Inc.
International Business Machines Corp., Aluminum Co. of America, Caterpillar Inc. and International Paper Co. rose the most. Shares of Alcoa rose as much as $2.125, to $82.875, after the company said it expects to record a fourth-quarter gain of about $3.30 a share from combining its bauxite, alumina and inorganic chemicals interests with Western Mining Corp. Holdings of Australia. Alumina is used in the production of aluminum.
Among broader market indexes, the Standard & Poor's 500 Index jumped 2.51, to 459.61, its highest level since reaching 461.47 on Nov. 18. The Nasdaq Combined Composite Index jumped 8.61, to 737.12, as gains in software companies helped the index to post its sixth advance in the last eight trading days.
Optimism about earnings helped fuel the gain in software stocks. Oracle Systems Corp., up $3, to $42.375, reported late Tuesday that fiscal second-quarter net income rose 51 percent on record sales. The largest independent publisher of database software said it earned 32 cents a share in the quarter that ended Nov. 30, up from 21 cents a year ago and above analysts' expectations of 30 cents.
"The economy was really brisk in the fourth quarter," said Bruce Bittles, market strategist at J. C. Bradford & Co. in Nashville, Tenn. That will help profits for the quarter to come in "a little better" than a year ago.
Shares of Novell Inc. rose 87.5 cents, to $17.50; Parametric Technology Corp. added 62.5 cents, to $32.125; Computer Associates International Inc. jumped $2.625, to $47.75; and Sybase Inc. rallied $1.75, to $49.50. Microsoft Corp. added $1.625, to $61.50, recovering from a slump of $2.875 Tuesday after the company disclosed it would delay the unveiling of its Windows 95 operating system until August.
Advancing stocks outpaced decliners by about seven to four on the New York Stock Exchange, where about 381 million shares traded hands. That's above the three-month daily average of 304.2 million.
Shares of Intel Corp. rose for a second day, gaining $1.375, to $62.625, after adding $3.4375 Tuesday. The company bowed to mounting criticism Tuesday by saying it would replace its defective Pentium computer chips at no cost to users.
The outlook for technology stocks is favorable, said Eugene Peroni, market analyst at Janney Montgomery Scott in Philadelphia. "The growth prospects in this sector are good and haven't reached peak momentum," Mr. Peroni said.
Among the other semiconductor stocks, Motorola Inc. soared $2.125, to $57.625; Micron Technology Inc. added $1.875, to $43.125; and Texas Instruments Inc. rose $1.25, to $73.125.
Mexican companies' American depositary receipts were among the day's worst performers. Mexican stocks plunged to their lowest level in more than a year after the nation's government, which just took office Dec. 1, devalued the peso. It was the first currency devaluation in seven years and spurred new concerns about the government's economic policies.
As the peso drops in value, the cost of paying off debt for Mexican companies that borrow in the United States rises.