Buying Takes Hold on Wall St.

Wall Street on Tuesday scored its biggest advance in two months, as sellers ran out of gas and buyers took control.

The rally, which lifted the Dow Jones industrial average 159.19 points, or 1.6%, to 10,117.62, boosted some investors’ hopes that the market had reached bottom after the pullback of recent months.

Many analysts said that Tuesday’s rebound, which appeared to have no particular spark, was fueled in part by technical factors -- for example, as traders who had previously sold borrowed shares, betting on further price declines, rushed to buy stocks to close out their bets.

Still, the market has been inching higher over the last week after mostly sliding since early April on worries about higher interest rates, record oil prices and violence in Iraq.

From April 6 through May 17 the Dow had fallen 6.3%, from 10,570 to 9,906.

The message in Tuesday’s strong advance may be that many professional investors are getting over their recent jitters and are antsy to make some money, some analysts said.

“These people are paid to invest, not to sit on the sidelines,” said Dan McMahon, a senior trader at brokerage CIBC World Markets in New York.

The Standard & Poor’s 500 index rose 17.64 points, or 1.6%, to 1,113.05.

The technology-dominated Nasdaq composite index jumped 41.67 points, or 2.2%, to 1,964.65.

The day’s percentage gains were the largest for the Dow, the S&P; 500 and the Nasdaq index since March 25.

The rally pushed the S&P; 500 back into the black year to date, leaving it up 0.1% since Jan. 1. The Dow is down 3.2% this year and Nasdaq is off 1.9%.

Winners topped losers by nearly 5 to 1 on the New York Stock Exchange and by about 2.5 to 1 on Nasdaq, although trading volume was modest.

Analysts said a pullback in oil prices from Monday’s record highs helped sentiment on Wall Street. Near-term crude oil futures in New York dipped 58 cents to $41.14 a barrel.

There was little reaction early in the day to President Bush’s speech Monday evening, in which he laid out his strategy for Iraq. Major stock indexes fell at the outset of trading. Prices began a sustained climb in the late morning New York time.

Some market pros say the approach of midyear usually drives investors to shift their focus to the next calendar year in terms of the economy and how stock prices might perform. Typically, Wall Street is looking six months ahead in pricing stocks, experts note.

Tuesday’s rally might signal that more investors are beginning to make that mental shift, said Christopher Wolfe, head of global equities at JPMorgan Private Bank in New York.

“I think the extension of the investment horizon is happening now,” he said.

Investors, Wolfe said, have been torn in recent weeks between near-term concerns -- rising interest rates, the surge in oil prices and the situation in Iraq -- and the longer-term outlook for economic and corporate earnings growth, which he believes is very strong.

“The fundamentals on the corporate side are the best in 40 years,” Wolfe said, referring to hefty earnings growth in recent quarters and the bullish outlooks many companies have given investors this spring.

Responding to the strong economy, the Federal Reserve is expected to begin tightening credit this summer by raising its benchmark short-term interest rate, which now is at a generational low of 1%.

Yields on longer-term bonds have risen sharply this year in anticipation of a Fed tightening move. The yield on the 10-year Treasury note, which eased to 4.72% on Tuesday from 4.73% on Monday, hit a 22-month high of 4.85% on May 13 compared with 4.25% at the start of the year.

Wolfe said bond yields might already have risen 60% to 70% of the way to the highs they might reach by the time the Fed finished raising short-term rates, perhaps in 2005.

If investors perceive that most of the damage is done in the bond market, they can focus more on companies’ earnings prospects, Wolfe said.

Joseph Lisanti, editor of S&P;’s Outlook investment newsletter in New York, said history showed that the stock market could overcome higher interest rates if investors didn’t become concerned that tighter credit could lead to a recession.

Even if the Fed begins raising rates this summer, as expected, “We think that [higher rates] will be digested well by the stock market over time,” Lisanti said.

He expects the S&P; 500 index to rise about 9% by year’s end.

Still, Lisanti said, there is plenty that could go wrong with his optimistic forecast. Some investors might bail out of stocks if they believe President Bush will lose the election, he said.

What’s more, “it’s not clear that there’s an exit strategy” from Iraq, Lisanti said. Those concerns could mushroom, particularly if violence rises there or terrorists strike the United States or its allies, he said.

For now, many analysts say the market is showing signs that sellers have become exhausted.

On Tuesday, one factor that fueled buying in the afternoon was that the market had broken the pattern of recent days in which morning rallies were followed by afternoon sell-offs, CIBC’s McMahon said.

As the rally picked up and stocks held their gains, that lured more buyers, he said.

“Technically speaking, I think the market is starting to shape up very well here,” McMahon said.

Among Tuesday’s highlights:

* Commodity and heavy-industry shares led the rally. The companies could be big winners if the global economy continues to expand at a brisk rate.

Mining firm Rio Tinto soared $2.35 to $95.60, engine maker Cummins jumped $1.40 to $57 and machinery firm Ingersoll-Rand was up $1.05 to $65.14.

* Home builders rallied sharply. Ryland Group jumped $3.60 to $80.94 and William Lyon Homes leaped $3.44 to $88.79.

* Indexes of smaller stocks scored bigger gains than blue-chip indexes. The Russell 2,000 jumped 13.67 points, or 2.5%, to 565.39. It is up 1.5% this year.

* In the technology sector, IBM rose $1.60 to $88.70, Apple Computer gained $1.07 to $28.41, Xilinx jumped $1.32 to $35.77 and Autodesk was up $1.51 to $34.82.

* The largest initial public stock offering this year began trading and closed flat on the day. Genworth Financial, an insurance spinoff from General Electric, ended at $19.50 a share on the NYSE, the same as its offering price Monday.

* Coal stocks led energy shares higher. Peabody Energy surged $2.58 to $50.33. Peabody is up nearly 21% this year on expectations that higher oil and natural gas prices could drive more utilities to switch to coal.

* Tobacco stocks recouped some of their losses in Monday’s session, when a judge said the federal government could seek to collect a $280-billion claim against the industry.

Altria Group, parent of Philip Morris, rose $1.70 to $46.65 after diving $4.37 on Monday.