Dow Soars as Investors Search for Stock Bargains

Bargain hunting and “short-covering” helped spur a midday stock rally Wednesday, driving the Dow Jones industrial average to its best gain in more than two months.

The broader market also closed higher, but the blue-chip Dow stole the show, surging 196.03 points, or 2%, to 9,941.17, its best percentage gain since it rose 2.2% on Dec. 5.

The Nasdaq composite index rose 24.96 points, or 1.4%, to 1,775.57, ending a three-session losing streak. The Standard & Poor’s 500 was up 1.4% as well.

Wall Street began the day with another sell-off, adding to Tuesday’s losses. But stocks turned around at midday and shot higher for most of the afternoon.

The Nasdaq index fell as low as 1,729, down 1.2% from Tuesday’s close, before bouncing back.

Winners topped losers by 19 to 12 on the New York Stock Exchange and by 20 to 15 on Nasdaq.

Many analysts were reluctant to suggest that the rebound was the start of a significant rally.

“The market appears to be one where we are seeing lots of rallies, lots of sell-offs,” said Alan Ackerman, executive vice president of Fahnestock & Co. “There’s little conviction and little leadership needed to get the market going.”

Worries about the accuracy of corporate accounting have weighed on the market in recent weeks, as the Enron and Global Crossing bankruptcies have been followed by allegations that the companies’ books were cooked. Those concerns continued to spread Wednesday. Computer Associates slid $4.40 to $20.91 on reports that federal prosecutors are examining whether the software firm deliberately overstated sales and profit to inflate its stock price.

IBM, which also has had its accounting questioned lately, closed off 23 cents at $99.31, though it recovered from a low of $97.

But other big-name stocks were sharply higher, including GM, up $2.27 to $52.28; 3M, up $3.73 to $117.10; and United Technologies, up $1.79 to $70.

Some analysts took an upbeat view of the focus on accounting.

“On the other side of this accounting imbroglio, we should have better [financial] disclosure, and that’s a good thing for stocks,” Edmund Cowart, who helps manage close to $6 billion at Eagle Asset Management in St. Petersburg, Fla., told Bloomberg News.

Experts said short-covering also helped boost the market Wednesday: Bearish traders who had borrowed shares and sold them--betting on lower prices--jumped in to buy stock to close out their positions as the rally progressed.

That may have helped some of the most battered tech and telecom stocks gain ground.

For example, Nextel Communications fell as low as $3.64 but recovered to close up 83 cents at $4.38. Lucent Technologies closed up 39 cents at $5.68 after falling as low as $5.25. WorldCom Group added 10 cents to $6.58 after falling as low as $6.12.

In commodities trading, crude oil futures in New York fell almost 3% as the failure of the Russian government and oil companies to extend export restrictions into the second quarter signaled a possible price war with the Organization of Petroleum Exporting Countries.

A meeting Wednesday between the Russian government and oil firms ended without any mention of export controls beyond March.

Near-term oil futures fell 59 cents to $20.29 a barrel.

Among the day’s highlights:

* Analysts’ upgrades helped some stocks. Circuit City climbed $2.21 to $24.32 after Merrill Lynch raised its near- and long-term recommendations on the retailer to “strong buy” from “buy.”

Also, software firm Oracle rose 72 cents to $15.51 after Banc of America Securities upgraded the stock to “buy” from “market perform.”

* Drug stocks attracted buyers. Merck gained $2.01 to $61.26 and Johnson & Johnson added $1.20 to $58.12.

* Bank stocks were broadly higher. Citigroup rose $1.30 to $43.52, Bank of America jumped $1.63 to $61.18, and Northern Trust was up $1.11 to $53.90.

But mortgage finance giants Fannie Mae and Freddie Mac closed lower after a Wall Street Journal editorial criticized the companies’ rising debt levels and their use of so-called derivative securities.

Fannie Mae and Freddie Mac are government-chartered companies created decades ago to buy mortgages from lenders. Together the companies now own or guarantee more than 40% of the roughly $5.8 trillion in outstanding U.S. mortgage loans. That has raised concerns about the potential fallout if either company encountered financial trouble.

The Journal editorial contended that the companies are keeping earnings growing with the use of derivatives. Fannie Mae called the editorial “egregious.”

Fannie Mae shares fell as low as $75.40 but closed at $77.40, down $1.05. Freddie Mac traded as low as $61.30 but closed at $63.15, off 77 cents.

* Many utility shares remained under pressure. AES fell 50 cents to $4.25 after Moody’s Investors Service warned it may downgrade the company’s debt rating. Also lower on the day were Dynegy, off 54 cents to $22.54, and Reliant Energy, down 36 cents to $20.99.

* Media stocks rallied after a court ruling favoring large media companies opened the door for more consolidation. Walt Disney rose $1.47 to $24.33, Belo Corp. gained $1.02 to $21.51, and Gannett rose $2.51 to $76.90.

* Many gold-mining stocks fell as gold futures eased again. Near-term futures fell 90 cents to $292.30 an ounce in New York.

Market Roundup, C8-9