Stocks rallied Monday as oil prices fell back and alleviated some of investors' concerns about inflation's effect on consumer spending. The Dow Jones industrials gained 130 points, but in thin trading.
After surging $10 a barrel last week, oil initially rose Monday to a new high of $126.40 before retreating. Crude futures settled at $124.23, down $1.73 from Friday.
"This market does seem to be reacting positively to any sort of easing we see in the energy patch," said Craig Peckham, market strategist at Jefferies & Co.
Investors also got some encouraging news about the credit crisis from London-based banking giant HSBC Holdings, which said its first-quarter earnings were up from a year earlier despite a $3.2-billion write-down of sub-prime mortgage assets in the United States and the company's prediction that the U.S. was likely to fall into recession this year.
In a similar vein, JPMorgan Chase Chief Executive Jamie Dimon, speaking at a conference Monday, estimated that the credit market crisis was 75% over, but said a recession was just beginning.
Monday's gains followed a week in which the Dow dropped 2.4% and the Standard & Poor's 500 index lost 1.8% as worries about inflation weighed on investors.
"This market, after having had a pretty rough last week, is prone to drawing in some more value-seekers," Peckham said.
The Dow rose 130.43 points, or 1%, to 12,876.31.
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 15.30 points, or 1.1%, to 1,403.58, and the Nasdaq composite index jumped 42.97 points, or 1.8%, to 2,488.49.
The Russell 2,000 index of smaller-company stocks rose 13.18 points, or 1.8%, to 733.23.
Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, but trading volume was the lowest of the year as many investors stayed on the sidelines.
Government bond yields rose along with stocks. The yield on the benchmark 10-year Treasury note climbed to 3.8% from 3.77% on Friday.
The dollar ended mixed against most other major currencies, while gold prices fell.
In other market highlights:
Hewlett Packard fell $2.30, or 4.7%, to $46.83 after the computer maker confirmed it was in talks to acquire technology consulting firm Electronic Data Systems for as much as $13 billion. Shares of EDS soared $5.27, or 28%, to $24.13.
MBIA rose 42 cents, or 4.5%, to $9.85. The struggling bond insurer posted a $2.41-billion first-quarter loss on charges tied to mortgage-backed securities backed by the company, but MBIA's CEO said the firm wouldn't need to raise more capital.
Pasadena-based IndyMac Bancorp fell 37 cents, or 11%, to $3.06. The mortgage lender swung to a first-quarter loss and tripled its credit reserves. The stock is down 91% in the last year.
Research in Motion gained $9.20, or 6.9%, to $141.97 after the smart-phone maker introduced its first major BlackBerry model in more than a year.
Overseas, key stock indexes advanced 0.6% in Japan, 0.3% in Britain, 0.5% in Germany and 0.3% in France.