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Stocks Rally into the Close

Stocks shot higher on the first trading day of the historically tough month of September. A report showing manufacturing activity picked up last month, along with some upgrades of popular tech stocks, helped drive the major indexes to new highs for the year as traders returned from the long holiday weekend marking the summer's end.

The Dow Jones industrial average rose 107.45 points, or 1.14%, to 9,523.27. The broader Standard & Poor's 500 index finally broke out of a nearly three-month trading range, gaining 13.98 points, or 1.39%, to 1,021.99. The Nasdaq composite index climbed 31.03 points, or 1.71%, to 1,841.48.

Auto, computer hardware, houseware, and computer and electronic retailing stocks gained, while oil and gold stocks fell.

The market has been on quite a roll, with the Dow and S&P 500 up in the last six months, while the Nasdaq gained seven months in a row, notes Standard & Poor's MarketScope. So far this year through Friday, Aug. 29, the Dow was up 13% and the S&P 500 gained 15%, while the Nasdaq jumped 36%. It seems it will take more than higher bond yields, a stronger U.S. dollar, and concern about rising valuations to curb the enthusiasm.

In economic news Tuesday, the ISM manufacturing index for August rose to 54.7, above the estimate of 53.0 and the revised reading of 51.8 in July. New orders increased to 59.6 from 56.6. The production subindex jumped to 61.6 from 53.3 - the highest level since June, 1999.

However, the ISM employment subindex dipped to 45.9 from 46.1, as the labor market remained a disappointment. Prices paid were unchanged at 53.0. "The data are more good news for the economy and should keep the bond market under pressure," says economic research outfit MMS International.

In a separate report, the Challenger Layoffs survey showed a slower pace for job cuts: 79,925 job cuts were announced for August, down 6% from the total for July. The year-to-date pace is slower as well, with job cuts down 15% from those announced through August, 2002.

Economic data coming out Wednesday include U.S. construction spending, auto sales for August, and the Federal Reserve's Open Market Committee Beige Book. MMS says the Fed's Beige Book should start to reflect the improvement in the economy evidenced by recent data, but suspects this one will also downplay some of the strength reflected in many of the recent numbers. "The report won't alter expectations that the Fed will remain on hold at its September 16 meeting," says MMS.

Among stocks on the move Tuesday, Dell (DELL) was higher on a Goldman Sachs upgrade.

National Semiconductor (NSM) was trading higher after being upgraded by Soundview to outperform from neutral.

In deal news, Vivendi Universal (V) says it will enter exclusive negotiations to form a deal to merge its U.S. film and TV businesses with General Electric's (GE) NBC unit.

Helen of Troy (HELE) shares jumped after the company agreed to acquire Brut for the U.S., Canada, and the rest of Western Hemisphere from Unilever. The transaction is expected to add 20 cents to 24 cents to Helen of Troy's earnings per share in the remainder of fiscal 2004.

Treasury Market

Concerns over a growing economy sank the Treasury market Tuesday after better than expected ISM data and another stock rally weighed heavily, says MMS International. Indeed, the note never saw the light of day with heavy losses occurring in the overnight session as world interest rate markets suffered heavy losses. A late day stock surge sent the contract to its lows of the session. The yield on the benchmark 10-year note rose to 4.63%.

World Markets

European markets were mixed. London's Financial Times-Stock Exchange 100 index was unchanged at 4,204.4. There was little reaction to a survey that said U.K. factory output rose in the third quarter for the first time in two years.

In Paris, the CAC 40 gained 5.41 points, or 0.16%, to 3,363.93. Vivendi was higher amid speculation its entertainment unit might merge with GE's NBC unit. Germany's DAX index edged down 4.02 points, or 0.11%, to 3,567.2 amid profit taking.

Asian markets finished higher. The Nikkei 225 index rose 19.90 points, or 0.19%, to close at 10,690.08, led by bank stocks. In Hong Kong, the Hang Seng index gained 36.54 points, or 0.34%, to close at 10,939.94.

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