Stocks shot higher into the close Wednesday, recouping Tuesday's severe losses amid more accounting news. Defensive and cyclical stocks led the gainers as investors hunted for bargains and for stocks that should benefit from an economic recovery.
"Some sectors are benefiting because they've been overdone on the downside," says Peter Coolidge, senior equity trader at Brean Murray & Co. in New York. "There is underlying sentiment that the economy is improving."
In economic news, the overall consumer price index and core index rose 0.2% in January, in line with expectations. S&P MMS expected the latest report on consumer prices to show the economy is showing recovery signs without inflation.
However, some areas of technology struggled amid more accounting-related news. In the latest development, the New York Times and Newsday reported that Federal prosecutors have opened a preliminary inquiry into whether software maker Computer Associates (CA ) violated federal criminal fraud laws with its accounting practices. In response, the company says it hasn't been contacted by authorities regarding any investigation. The stock was down sharply in heavy trading.
"There's a credibility crisis that's going to take more than one or two days to resolve," Coolidge says. "We're seeing continued wariness about what numbers we can really trust."
General Electric (GE ) reportedly plans to change the way it makes disclosures in its financial reports, including providing more detail about specific businesses in GE Capital. On Tuesday, IBM Corp. (IBM ) reportedly said it will also expand its financial reporting.
Another restraint on the market was AOL Time Warner (AOL ), which was downgraded by Lehman Brothers to market perform from buy based on reduced growth projections for its AOL division. Cisco Systems (CSCO ) also fell after CS First Boston lowered its price target to $20.
The Dow Jones industrial average surged 196 points, or 2.01%, to 9,941.17. The Nasdaq Composite climbed 24.97 points, or 1.43%, to 1,775.58, recovering early losses Wednesday thanks in part to gains in software makers such as Microsoft (MSFT ). And the broader Standard & Poor's 500 index gained 14.64 points, or 1.35%, to 1,097.98, fueled by gains in pharmaceutical, conglomerate, telecommunications and system software groups.
Among Wednesday's stocks in the news, IDEC Pharmaceuticals (IDPH ) says its drug Zevalin has been approved for marketing by the FDA for treatment of transformed B-cell non-Hodgkin's lymphoma. Salomon Smith Barney upgraded the stock to buy from outperform on the news.
In earnings news, drug company Cephalon (CEPH ) reported better-than-expected fourth quarter earnings, and said it expects first quarter EPS to be $0.15, a penny above the consensus forecast. Test and measurement equipment company Agilent (A ) reported a first quarter pro forma loss of $0.29 per share, much narrower than expected, and guided for a smaller loss in the second quarter of $0.20-0.30. Apparel retailer Abercrombie & Fitch (ANF ) reported fourth quarter EPS of $0.73, a nickel higher than expected.
Treasuries finished near unchanged in a quiet session. Early losses in U.S. stocks encouraged some buying, but the afternoon rebound in equities erased most of the rally. The Treasury market's reaction to the CPI report was muted, much like the data itself.
European stocks were lower. In London, the FTSE 100 index ended with a loss of 68.40 points, or 1.34%, to 5,024.10 as the U.K. posted a smaller than expected trade surplus in December, and M4 money supply grew a smaller than expected 0.4% rate in January. In Germany, the DAX Index ended with a gain of 16.19 points, or 0.34%, to 4,780.24 as German building orders fell 9.8% in December. In France, the CAC 40 index finished with a decline of 17.37 points, or 0.41%, to 4,238.99.
Asian markets finished lower. In Japan, the Nikkei lost 13.03 points, or 0.13%, to close at 9,834.13 as gains in defensive stocks and companies with firm earnings prospects offset declines in the technology and telecommunications sectors. In Hong Kong, the Hang Seng lost 91.43 points, or 0.84%, to close at 10,749.06.
By Karyn McCormack in New York