Stocks End Solidly Higher on Tech Strength

Major indexes advanced despite the release of a government report showing a steep first-quarter drop in U.S. workers' productivity

Stocks shrugged off fresh economic data, which offered more evidence of a slowing economy, and instead rallied on good news from the technology sector to end in solidly positive territory.

Tech stocks were given a boost by an analyst recommendation on upstarts from Merrill Lynch. Chip makers also said financial outlooks for the fourth quarter remain unchanged, and order cancellations and delays have slowed.

"We've seen a slow, steady climb for most of the day, propelled by favorable tech news and economic numbers that improved the likelihood of another rate cut," according to Stephen Carl, head of equity trading at Williams Capital Group.

Among the stocks in the news Tuesday, Lucent Technologies Inc. (LU ), the struggling telecommunications equipment maker that recently terminated merger talks with France's Alcatel, said it sees third-quarter sales to be modestly higher than the second-quarter level despite market weakness. Shares of Lucent gained more than 8%. Other tech gainers included Intel Corp. (INTC ) and Microsoft Corp. (MSFT ).

Biotechnology stocks also surged Tuesday. The Amex biotech index hit a six-month high after analysts upgraded their recommendations on stocks, amid optimism the biotechnology industry is set to outperform other growth sectors.

The positive biotech and tech news overshadowed a new government report that showed an unexpected drop in U.S. workers' productivity - another sign of a slowing economy. The Labor Department reported U.S. workers' productivity, a key gauge of rising living standards, fell at an annual rate of 1.2% in the first quarter, far weaker than the government previously estimated. The downward revision in productivity - the amount of output per hour of work - was the biggest decline in eight years.

And in Vienna, OPEC, the cartel of oil producers, decided to postpone a decision on how to respond to Iraq's stoppage of its U.N.-administered crude sales, according to news reports. Given ample crude inventories and stable prices, there's no need to panic over Baghdad's decision to suspend deliveries under the United Nations oil-for-food program, the oil ministers said. The decision to hold off raising output levels for OPEC's 10 members pushed crude oil prices higher.

The Dow Jones Industrial Average surged 114.32 points, or 1.03%, to 11,175.84. The Nasdaq index gained 77.79 points, or 3.61%, to 2,233.72. The broader S&P 500 index added 16.45 points, or 1.30%, to 1,283.56.

Treasury Market

U.S. Treasuries also ended higher, following the release of data pointing to continued economic weakness. In addition to the decline in worker productivity, U.S. factory orders fell 3% in April, compared to a downwardly revised 0.7% in March (from 1.4%). This was a bit weaker than expected.

Additionally, the Commerce Department reported new orders received by U.S. factories fell sharply in April, and the National Association of Purchasing Management said its non-manufacturing index fell to 46.6, its lowest reading in nearly four years. Factory orders plunged 3% in April, following a downwardly revised 0.7% gain in March. The April orders decline was steeper than the 2.8% drop forecast by Wall Street.

World Markets

European markets ended higher. In London, the Financial Times-Stock Exchange 100 index added 66 points, or 1.13%, to 5,922.50. In Germany, the DAX Index was up 64.39 points, or 1.04%, to 6,242.13. In France, the CAC 40 gained 83.56 points, or 1.54%, to 5,516.27.

In Asia, markets finished mixed. The Nikkei lost 130.35 points, or 0.98%, to 13,182. In Hong Kong, the market surged 244.38 points, or 1.85%, to 13,451.87.

By Heesun Wee in New York

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