Stocks Rally Again

A late surge lifted the major averages to cap a roller coaster session. On deck Thursday: The latest update on wholesale inflation

Stocks finished higher Wednesday as buyers came out in force in the last hour of trading in a continuation of Tuesday's broad rally. An upbeat earnings report and guidance from Cisco Systems' (CSCO ), along with some positive economic news, provided some support.

The Dow Jones industrial average climbed 182 points, or 2.2%, to 8,456.15. The tech-heavy Nasdaq composite index gained 21.35 points, or 1.7%, to 1,280.90, led by networking and semiconductor-related stocks. And the broader Standard & Poor's 500-stock index was up 17.20 points, or 2%, to 876.77.

In economic data due Thursday, S&P MMS expects both the overall producer price index and the core index to rise a tame 0.1%. The report should indicate that wholesale inflation continues to be a non-threat, says S&P MMS, implying that the Federal Reserve should feel no pressure to raise rates anytime soon.

On the earnings front, Del Monte Foods (DLM ) and Qwest Communications (Q ), along with a number of smaller companies, will report quarterly results. Also, many retailers are expected to issue July sales figures on Thursday.

The market swung back and forth most of the day Wednesday until bulls rushed in through the close despite the lack of inspirational news headlines. Many market technicians say the volatile action is part of a bottoming process.

After the market close Tuesday, Cisco reported fourth-quarter EPS (pro forma) of 14 cents on revenue of about $4.83 billion. The earnings topped analysts' estimates due to cost cuts, but revenue was a bit shy of forecasts. The networking gear maker says it expects first-quarter revenues to be flat to slightly higher, which was better than some expectations. Cisco shares ralled more than 7% and helped boost many other tech stocks.

But there was some notable pockets of weakness on Wednesday. Insurance company Aon Corp (AOC ) tumbled about 30% after it reported weak second quarter results and disclosed an SEC investigation into certain accounting practices that could lead to a restatement of prior years' results. The company also may cancel a spinoff of its underwriting unit in favor of an outright sale.

Shares of Tyco International (TYC ) were also down on a Wall Street Journal report that the conglomerate may have spent over $135 million to benefit former CEO Dennis Kozlowski, including the forgiveness of a $25 million loan in 1999.

Employee-services stocks fell after TMP Worldwide (TMPW ), which operates the job-search website, reported a second-quarter loss per share of $4.53 on 24% lower commissions and fees and issued a disappointing outlook. Wachovia downgraded the stock, which skidded about 35%.

In economic news Wednesday, U.S. wholesale inventories rose 0.3% in June -- the first increase in more than a year -- after a revised flat reading in May (from up 0.1% previously). Sales jumped 0.6%, following a revised unchanged reading in May (from down 0.2% previously). The inventory-to-sales ratio held steady at the record low of 1.23 (May was revised lower to 1.23 from 1.24). The data was stronger than expected and signal that businesses have started building inventories in anticipation of an economic recovery.

Meanwhile, the Labor Department said that prices of imported goods rose 0.4% last month, after falling 0.3% in June, thanks to higher petroleum prices. Export prices climbed 0.3% after a flat reading in June, driven by rising food prices.

Treasury Market

Treasuries closed higher, despite a very poor 10-year note auction at midday that clobbered the market. Economic data released this morning had little effect, as anticipation of next Tuesday's Federal Open Market Committee meeting kept a firm underlying bid.

The bond market is increasingly looking for some action from the Fed next week, be it an actual rate cut or a mere shift in the bias back to easing. S&P MMS still sees the odds of either event rather low, especially since it was only a few weeks ago that Fed Chairman Alan Greenspan indicated that the economy was doing well.

World Markets

European markets lost ground. In London, the Financial Times-Stock Exchange 100 index ended down 36.60 points, or 0.89%, to 4,094.40. The Bank of England cut its forecasts for growth and inflation in Europe's second-biggest economy.

In France, the CAC 40 fell 14.28 points, or 0.4%, to 3,270.51. And in Germany, the DAX Index was down 103.10 points, or 2.89%, to 3,465.54. In economic news, German unemployment rose to a three-year high of 9.9% in July as a recovery in Europe's largest economy lost steam. Meanwhile, factory orders skidded 3.2% on declining foreign demand.

In Asia, the markets finished higher. In Japan, the Nikkei shot higher by 333.38 points, or 3.51%, to close at 9,834.40. Tokyo stocks gained momentum as U.S. equities showed sharp rebounds on the back of growing expectations that the Fed will again ease interest rates. Short-covering and bargain-hunting also supported the market after Japan's major equity indices hit six-month lows yesterday.

In Hong Kong, the market jumped 277.05 points, or 2.86%, to close at 9,977.74.

Before it's here, it's on the Bloomberg Terminal.