Wall Street resumed its advance Tuesday as investors bought technology and financial stocks to beef up their portfolios on the last day of the quarter.
The Dow Jones industrial average, which added more than 180 points in afternoon trading, was on track for its biggest monthly gain in nearly nine years.
Analysts attributed much of the market's jump to large investors loading up on rising stocks in order to report strong holdings at the end of the first three-month reporting period of 2009, which ends on Tuesday.
Investors shrugged off lackluster economic data and snatched up some of the biggest names in technology and banking including Google Inc., International Business Machines Corp., Bank of America Corp. and Citigroup Inc.
The market is coming off a two-day pullback as stocks took a breather following a three-week rally that brought the Dow Jones industrial average up 21 percent since early March. That surge was driven by optimism that U.S. banks may be emerging from the worst of a lending crisis.
The government finally delivered details last week of its plans to take failed loans off the books of struggling banks and leaders of several large banks have said they did well in January and February.
The financial sector is likely to get another dose of good news later this week. The Financial Accounting Standards Board is widely expected to ease accounting rules that require companies to list their assets at current market values.
Banks have had to take massive writedowns over the past two years as the value of mortgage-backed securities and other investments has withered. Banks say a softening of the "mark-to-market" rules would help their bottom lines.
Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati, said the gain in bank stocks on Tuesday was likely boosted by some short-covering in anticipation of a resolution on the rules, as traders don't want to miss out on a possible rally in financials later this week. Short covering, or the buying of stocks to cover bets that stocks would fall, has played a large role in the surge in bank stocks over the past few weeks.
In late afternoon trading, the Dow Jones industrial average rose 180.56, or 2.4 percent, to 7,702.58. The Standard & Poor's 500 index gained 19.98, or 2.5 percent, to 807.51, while the technology-heavy Nasdaq composite index rose 43.74, or 2.9 percent, to 1,545.54.
The Russell 2000 index of smaller companies rose 12.69, or 3.1 percent, to 428.66.
Advancing issues outnumbered decliners by about 5 to 1 on the New York Stock Exchange, where volume came to 880.7 million shares.
The advance on Tuesday was also supported by "window dressing" buying as large investors not wanting to end the quarter with large amounts of cash loaded up on stocks they think have good prospects.
"Technology, of all the S&P sectors, is the only one that is up on the year," said Craig Peckham, an analyst at Jefferies & Co. "If you're going to try to window dress anywhere on the last day of the quarter, technology is a good place to start."
In light of the market's more upbeat sentiment in recent weeks, investors also are making bets on sectors that are poised to turn around first when the economy improves, including financial service providers, materials and consumer discretionary companies, Peckham said, like Capital One Financial Corp., Alcoa Inc. and Best Buy Co.
Technology shares also got a lift Tuesday from a deal between The Walt Disney Co. and Google that will allow Google's video site YouTube to show short-form videos from Disney's ABC and ESPN networks. Disney shares rose 49 cents, or 2.8 percent, to $18.34, while Google gained $7.21 to $349.90.
Lincoln National Corp. gained about 10 percent, pulling other life insurance stocks up as well, after saying it would pay off a debt coming due soon, assuaging concerns about the company's financial position.
Investors have been worried about insurance stocks since their investment portfolios have suffered so much with the market downturn, which has brought stocks down by about half from their peak in October 2007.
Lincoln rose 70 cents to $7.11, after tumbling 38 percent on Monday. Other insurers that rose included MetLife Inc., which added $1.62, or 7.5 percent, to $23.12, and Prudential Financial Inc., which rose $1.27, or 7.1 percent, to $19.27.
Big gainers in the financial industry included Bank of America, which rose 64 cents, or 10.6 percent, to $6.67; Citigroup, which added 21 cents, or 9.1 percent, to $2.52; and Fifth Third Bancorp, which gained 45 cents, or 18.2 percent, to $2.93.
Alcoa shares, meanwhile, soared after Deutsche Bank analysts upgraded the aluminum producer's stock to "Hold" from "Sell." The company has struggled amid the deteriorating economy, but the analysts have been encouraged by its recent efforts to raise cash. Shares jumped more than 11 percent, or 77 cents to $7.46.
Investors looked past a number of economic reports, including the S&P Case-Shiller index of 20 cities, which showed that U.S. home prices declined by a record 19 percent in January from a year ago. Meanwhile, the Chicago purchasing manager's index of business conditions dropped to a reading of 31.4 in March from 34.2 in February.
A measure of consumer confidence inched up in March after plummeting to historic lows in February, a private research group reported Tuesday. The Conference Board said its Consumer Confidence Index rose to 26.0, from a revised 25.3 reading in February - below expectations, but a small uptick nonetheless.
For the time being, analysts expect an ongoing battle between bears and bulls, as investors try to determine if the recent rally was just a short-lived upswing within a bear market, or if the market has indeed turned a corner.
The market has been in bear territory, which is defined as a 20 percent drop from a high, since the fall of 2007. There has been heated debate about whether the market has finally reached a bottom after stocks hit new 12-year lows on March 9 and rallied sharply since.
If Wall Street can get more evidence that the economy is bottoming out, it has a better chance of making up the sharp losses logged this year, analysts say. The Dow is still down 14.3 percent for 2009, but up 14.5 percent from its nearly 12-year low on March 9.
The next frontier for the market will be first-quarter earnings reports. If results meet or exceed the already low expectations, it's possible Wall Street's advance could continue, analysts said.
The major indexes had dropped about 3 percent Monday as the White House rejected General Motors Corp.'s and Chrysler's turnaround plans, raising the possibility of an automaker bankruptcy. The administration also replaced GM's CEO Rick Wagoner with the company's chief financial officer, Fritz Henderson. In his first press conference as CEO on Tuesday, Henderson said more plant closures are likely as the company works to avoid bankruptcy.
GM shares dropped 38 cents, or 14 percent, to $2.32, after plunging 25 percent on Monday.
Bond prices were mixed Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.68 percent from 2.72 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.20 percent from 0.18 percent Monday.
Crude oil reversed an early slide, gaining 98 cents to $49.39 a barrel on the New York Mercantile Exchange.
The dollar was lower against other major currencies. Gold prices rose.
Overseas, Japan's Nikkei stock average fell 1.5 percent. Britain's FTSE 100 rose 4.3 percent, Germany's DAX index rose 2.4 percent, and France's CAC-40 rose 3.2 percent.
Copyright 2009 The Associated Press