Aug. 3 (Bloomberg) -- The Dow Jones Industrial Average rose and the Standard & Poor's 500 Index climbed to a four-year high as oil prices fell from a record.

Microsoft Corp., the world's third-most valuable company, led a rebound in the last hour of trading on speculation new products will increase sales. The market's gain was tempered by Time Warner Inc.'s first loss in almost three years and a report showing slower growth in U.S. service industries.

``The market's taking a little bit of a breather,'' said Larry Fox, head of institutional sales trading at Ehrenkrantz King Nussbaum in Garden City, New York. ``A lot of the earnings are reflected in the market, but I do think that the more positive earning reports that come out, the more confidence that investors will have in the market.''

The Dow average gained 13.85 to 10,697.59. The S&P 500 rose 0.92 to 1245.04, a level not seen since June 2001. The Nasdaq Composite Index slipped 1.34 to 2216.81. All three benchmarks had moves of 0.1 percent.

Seven stocks fell for every five that advanced on the New York Stock Exchange. Some 1.52 billion shares changed hands on the Big Board, 5.8 percent more than its three-month average.

Microsoft

Microsoft, the world's largest software maker, gained 44 cents, or 1.6 percent, to $27.25 for the best performance in the Dow average. The stock notched its biggest three-day rally since April 2004 amid investor optimism that new products will push revenue and profit growth over 10 percent.

Time Warner, the world's largest media company, slipped 15 cents to $17.27. The company had a second-quarter loss after it agreed to pay $2.4 billion to settle lawsuits related to its America Online unit. Excluding some costs, second-quarter profit was 18 cents a share, 1 cent shy of the average analyst estimate in a Thomson Financial survey.

Crude oil for September delivery lost 1.7 percent to $60.86 a barrel in New York after climbing to a record $62.50. A gauge of energy companies was the biggest drag on the S&P 500 among 10 industry groups after the Energy Department reported an unexpected increase in inventories.

The Institute for Supply Management's measure of financial services, retail trade and other non-manufacturing business declined to 60.5 in July from 62.2 the previous month as fewer companies reported business improved. Economists expected a reading of 61.5 in a Bloomberg News survey. Measures of 50 or greater signify growth.

Earnings Beating Estimates

Second-quarter earnings have beaten analysts' expectations. With 80 percent of the S&P 500 having reported, profit jumped an average 14 percent. Analysts surveyed by Thomson about a month ago estimated earnings would rise 6.6 percent.

``On both absolute and growth of earnings, and relative to expectations, it's been a very positive earnings season,'' said Doug Ralston, who manages $2 billion as chief investment officer at Trustmark National Bank in Jackson, Mississippi. ``When you get this type of a broad, impressive rally, it generally bodes well'' for the market.

Reebok International Inc., the No. 2 U.S. maker of athletic shoes, jumped $13.19, or 30 percent, to $57.14 for the best performance in the S&P 500. Adidas, the world's No. 2 sporting- goods maker, agreed to pay $3.8 billion, or $59 a share, for Reebok to narrow the gap with Nike Inc. Shares of Nike, the biggest athletic-shoe maker, added $1.09 to $86.92.

Energy Stocks Fall

The drop in energy companies was led by Exxon Mobil Corp. The world's No. 1 publicly traded oil company lost 81 cents to $59. ConocoPhillips, the largest U.S. oil refiner, slid 48 cents to $63.90.

Delta Air Lines Inc. shares reached their lowest in at least 43 years amid concerns the carrier is closer to filing for bankruptcy. Chief Executive Gerald Grinstein told employees in a memo last week that ``more must be done and be done quickly'' to restore profitability as the carrier tries to avoid bankruptcy protection.

``Delta does not comment on stock market activity,'' spokesman Anthony Black said today. The stock touched $2.12 before closing at $2.32, down 21 cents, or 8.3 percent.

Brocade Communications Systems Inc. and Analog Devices Inc. slumped after third-quarter results were less than expected.

Brocade dropped 53 cents to $3.96. The world's largest maker of switches for data-storage networks had an unexpected third-quarter net loss of 3 cents to 4 cents a share on sales of $121 million to $122 million. Brocade had forecast earnings of as much as 6 cents a share on sales of up to $145 million.

Analog Devices was down $2.14 at $38.58. The world's No. 4 maker of digital signal processors that run mobile phones said fiscal third-quarter profit and sales fell short of its highest forecasts on weaker-than-expected demand from Asian customers.

Cephalon

Cephalon Inc., the maker of the sleep-disorder drug Provigil, retreated $1.22 to $42.62. The company forecast 2005 earnings, excluding some items, of as much as $2.85 a share, 10 cents less than its prior forecast.

Calpine Corp., owner of power plants in 21 states, lost 56 cents, or 14 percent, to $3.32 for the worst performance in the S&P 500. The company's second-quarter per-share loss widened to 66 cents from 7 cents. Separately, a Canadian court ruled that Calpine must place in the control of its Calpine Canada Resources Co. unit enough of the proceeds from the sale of the U.K. Saltend power plant to cover the face amount of certain company-issued bonds.

Insurers Gain

Insurers Aon Corp. and Cigna Corp. gained as results exceeded analysts' estimates.

Aon, the world's No. 2 insurance broker, jumped $4.32, or 17 percent, to $29.88. Profit last quarter rose to 57 cents a share, more than the 48-cent estimate in a Thomson poll.

Cigna, the No. 4 U.S. health insurance provider, said second-quarter operating profit, excluding some items, was $1.98 a share, more than the $1.55 analysts expected in a Thomson survey. Full-year earnings, on the same basis, may also exceed analysts' expectations. Cigna surged $7.17 to $115.57.

BMC Software Inc. rallied $1.37 to $20.19. The maker of programs that manage corporate networks said it expects fiscal 2006 profit, excluding some costs, of 90 cents to 96 cents a share, up from an earlier forecast of 86 cents to 92 cents.

S&P 500 shares, called Spiders, increased 33 cents to $124.72. Nasdaq-100 tracking shares, known by their QQQQ symbol, slipped 2 cents to $40.06.

S&P 500 futures expiring in September added 2.70 to 1247.80 on the Chicago Mercantile Exchange. Nasdaq-100 Index futures climbed 3.50 to 1632.50.

The Russell 2000 Index, which tracks companies with a median market value of $512 million, retreated 5.13 to 683.38. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, was little changed, down 2.24 to 12,439.49. Based on changes in the Wilshire, the value of stocks decreased by $2.8 billion.

Aon Corp. (AOC US)
Analog Devices Inc. (ADI US)
BMC Software Inc. (BMC US)
Brocade Communications Systems Inc. (BRCDE US)
Calpine Corp. (CPN US)
Cephalon Inc. (CEPH US)
Cigna Corp. (CI US)
ConocoPhillips (COP US)
Delta Air Lines Inc. (DAL US)
Exxon Mobil Corp. (XOM US)
Microsoft Corp. (MSFT US)
Nike Inc. (NKE US)
Reebok International Inc. (RBK US)
Time Warner Inc. (TWX US)

To contact the reporter on this story: Dune Lawrence in New York at dlawrence6@bloomberg.net.

Last Updated: August 3, 2005 17:01 EDT