While off session highs, stocks managed to hold onto modest gains to finish higher Thursday, as investors focused on strong earnings results.
The buying on Thursday extended Wednesday's dramatic rally, which pushed the blue-chip Dow above the 11,000 mark to its highest level in eight months. That major rally came a day after the Federal Reserve's expected 50 basis-point cut in its benchmark short-term interest rate, and an indication it may ease further to aid a struggling economy. The market on Wednesday also got a boost from tame Consumer Price Index data - a gauge of inflation at the consumer level.
"Many observers previously thought the Fed was through with cutting rates. [On Wednesday] we saw a sudden and sharp upswing as bargain-hunters went to work and short-sellers were caught in a feeding frenzy," Alan Ackerman, chief market strategist with Fahnestock & Co., told Standard & Poor's research unit. "Once the Dow closed over 11,000, it created the sense that we might have a continued upthrust during the next month or so," Ackerman added.
On Thursday, investors, still buoyant, fixated on mergers and solid earnings reports. Among the stocks in the news, financial services giant Citigroup (C ) agreed to acquire Grupo Financiero Banamex, Mexico's largest commercial bank, for $12.5 billion in cash and stock. Citigroup expects the deal to be accretive to earnings in the first year. Among companies reporting results were communications equipment maker Ciena Corp. (CIEN ), which beat earnings estimates. And computer and printer maker Hewlett-Packard Co. (HWP ) posted earnings that beat lowered expectations. After the closing bell, Dell Computer (DELL ) reported first quarter earnings per share of 17 cents, matching analysts' expectations.
The Dow Jones Industrial Average gained 32.66 points, or 0.29%, to 11,248.58. The Nasdaq Composite index was higher by 27.20 points, or 1.26%, to 2,193.64 - shy of the psychologically important 2,200 mark. Meanwhile, the broader S&P 500 was up 3.50 points, or 0.27%, to 1,288.49.
U.S. Treasuries finished higher. Shorter-dated issues were lower in price on strength in stocks and lowered Fed easing expectations. The long end was higher in price, pushing yields lower, as the market continued to reduce expectations of inflation after Wednesday's tame CPI data. The long end also has been supported by Thursday morning's $1.75 billion Treasury buyback.
Earlier in the session, Treasuries took a slight hit following the release of this week's initial jobless claims report. The Labor Department said U.S. jobless claims fell 8,000 to 380,000 for the week ended May 12. The 4-week moving average dipped to 401,250 from 403,500.
European markets ended higher. In London, the Financial Times-Stock Exchange 100 index added 20.50 points, or 0.35%, to 5,904.50. In Germany, the DAX Index gained 25.37 points, or 0.41%, to 6,173.81. In France, the CAC 40 climbed 69.96 points, or 1.27%, to 5,592.65.
In Asia, markets finished higher. The Nikkei gained 216.40 points, or 1.58%, to 13,910.67. In Hong Kong, the market surged 301.92 points, or 2.26%, to 13,637.87.
By Heesun Wee in New York