Retail Sales, Stimulus News Help Stocks

Investors Wednesday also weighed reports that Yahoo! and News Corp. are in talks on a possible alliance

Stocks finished sharply higher Wednesday after stronger-than-expected retail sales in January helped ease the widespread fears of a recession. Sentiment was also lifted by President Bush’s signing of the U.S. economic stimulus package, some favorable earnings reports, and late-session reports that Yahoo! (YHOO) is discussing a possible partnership with News Corp. (NWS).

The Yahoo!-News Corp. talks were reported on The Wall Street Journal's web site. Yahoo! is fighting off an unsolicited $44.6 billion takeover bid from Microsoft (MSFT).

On Wednesday, the Dow Jones industrial average gained 178.83 points, or 1.45%, to close at 12,552.24. The broader S&P 500 index gained 18.33 points, or 1.36%, to finish at 1,367.19. The tech-heavy Nasdaq composite index ended the session with a gain of 53.89 points, or 2.32%, to 2,373.93, sparked by strength in Applied Materials (AMAT) after the semiconductor equipment outfit posted upbeat earnings news.

For every 21 stocks moving higher on the New York Stock Exchange, 11 were falling in price. On the Nasdaq, the ratio was 22 to 8 positive. Financial issues were lower.

While most were expecting the U.S. retail sales figure to fall slightly, U.S. retail sales rose 0.3%. That "caught everyone off guard," said Ryan Sweet of Moody's The sales number was helped by a 2% increase in gas station sales.

John Ryding, chief U.S. economist at Bear Stearns (BSC) warned that the report is weaker than the headline number suggests. Sales in November and December were revised lower. And, while higher gas prices helped the number, consumers spent less on department stores, electronics, eating and drinking, and furniture in January.

However, Sweet wrote, "Markets will take today's headline number as a sign that consumer remain resilient."

Sentiment on Wall Street was also helped by news that U.S. business inventories rose 0.6% in December, more than the 0.4% economists were expecting. That could raise estimates of fourth-quarter economic growth.

U.S. Treasury Secretary Henry Paulson embraced the fiscal stimulus plan recently enacted by Congress in testimony before a House Budget panel Wednesday, reaffirming that 130 million citizens would get tax rebates starting in early May, which will help prop up the economy at a time of slowing growth. While he sees long-term fundamentals as healthy, he urged Congress to "modernize the FHA, reform GSEs and let states issue bonds for mortgage refinancings."

President Bush is expected to sign the $152 billion stimulus package later on Wednesday. The plan, together with business incentives, is expected to add 500,000 jobs by the end of 2008, according to Paulson.

On Thursday, Federal Reserve Chairman Ben Bernanke will testify before the Senate Banking Committee.

NYMEX March WTI oil futures rose 50 cents to $93.28 per barrel as Venezuela cut off shipments to Exxon Mobil (XOM).

Among stocks in the news Wednesday, the Coca-Cola Company (KO) reported earnings of 52 cents per share, up from 29 cents a year ago as revenue rose 24%. The fourth-quarter earnings number did include a 6 cent per share charge from restructuring costs and asset write-downs.

Waste Management (WMI) reported earnings of 61 cents last quarter, vs. 46 cents a year ago, as revenue grew 2.4%. A gain from tax benefits of 7 cents per share offset the impact of labor disruptions in California, the company said.

Applied Materials (AMAT) reported better-than-expected earnings of 25 cents per share, vs. 29 cents a year ago as sales fell 8.3%. Next quarter's sales could be flat or rise as much as 5%, the semiconductor firm says.

Shares of First Solar (FSLR) soared Wednesday after the company reported fourth quarter EPS of 77 cents, vs. 12 cents, on a sharp revenue rise.

E*Trade Financial Corp. (ETFC) says it saw daily trades in January rise 22% from a year ago and 19% from the previous month. The troubled online broker and bank says it added a net of 16,000 new retail accounts last month.

Dean Foods (DF) saw earnings of 27 cents last quarter, vs. 61 cents a year ago, as higher interest expenses cut into profits, offsetting a 25% rise in sales.

MGIC Investment Corp. (MTG) reported a loss of $18.17 per share even though revenue rose 8.7% for the mortgage insurer. The firm says it has hired an advisor to help it increase its capital.

Major European stock indexes finished mixed Wednesday. In London, the FTSE 100 index was down 0.51% to 5,880.10, and in Paris, the CAC 40 index gained 0.3% to 4,855.40. Germany's DAX index inched higher by 0.08% to 6,973.67.

In Japan, the Nikkei 225 index moved up 0.36% to 13,068.30, while in Hong Kong, the Hang Seng index rose 1.08%, to 23,169.55.

Treasury market

Treasuries fell Wednesday as an unexpected rise in January retail sales tempered speculation of an economic recession. The 10-year note fell 10/32 to 98-12/32 for a yield of 3.69%. The 30-year bond sank 31/32 to 97-24/32 for a yield of 4.51%. President Bush's signing of an economic stimulus plan contributed to a bearish backdrop for Treasuries.

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