Wall St. back with a vengeance


A rally in the U.S. dollar has helped boost sentiment towards stocks

By Alexandra Twin
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- Wall St stocks have struck gold for a second session in a row as a strong U.S. dollar, improved market psychology, and gains in a wide range of blue chips, software, chips and other techs pushed major indexes more than 5 percent higher.

The Dow Jones industrial average added 447.49, or around 5.4 percent, to close at 8,711.88 -- the third-best one-day point gain ever.

The average has gained around 927 points, or 10.6 percent, over the last week, thanks to Monday's session and last Wednesday's more than 488-point rally.

The Nasdaq composite gained 73.13, or around 5.8 percent, to 1,335.25. The Standard & Poor's 500 index added 46.12, or around 5.4 percent, to 898.96.

"The rally had a lot of legs to it. It felt powerful. It was broad-based, across the board and it held through the close," Ted Weisberg, a trader at Seaport Securities, told CNNfn's Street Sweep.

"But I suspect there was a lot of short-covering. I suspect we're not out of the woods yet," he said.

"For the moment, we still have to view this as a bear market rally -- sharp with lots of volume. I think we'll probably pull back from this strength and we'll have to see if we can hold it from there and then go higher."

Amid a broad rally on the Dow Monday, financials stood out.

Controversial companies J.P. Morgan Chase (JPM: up $2.85 to $25.10) and Citigroup (C: up $2.57 to $33.31) continued to rally on strong denials of any financial wrongdoing in the collapse of Enron, a charge that had hurt shares in the previous week.

Other big caps also joined the rally, extending the previous session's gains, with Microsoft (MSFT: up $2.90 to $48.25) and IBM (IBM: up $4.78 to $71.18) charging ahead.

On the Nasdaq, semiconductors got a boost from a positive Merrill Lynch note, in which analyst Joe Osha said the firm has revised its valuation outlook on the sector and now expects a modest recovery. I

Intel (INTC: up $1.08 to $18.89), Applied Materials (AMAT: up $0.78 to $15.10), Novellus Systems (NVLS: up $3.28 to $27.88) and KLA-Tencor were among the stocks trading higher.

"It's a much-needed rally off of extremely oversold conditions and we're getting a really strong bounce right now," said Brian Finnerty, managing director at Melhado Flynn & Associates.

"You need to hold these gains and you need to get a few more days of follow-through. I believe we will."

Greenback surges

Another key factor in the advance was the recovery of the dollar, which rose to Ľ119.81.

Weakness in the dollar has been a contributing factor in the market's recent decline. It has been as low as Ľ115 this month. The euro fell to 97.92 U.S. cents early Monday after rising as high as $1.02 earlier this month.

"When the dollar is falling, there is a fear that international investors are pulling out, and this can impact stock prices and company profits both in the U.S. and abroad," said Sean Callow, a currency strategist at IDEAglobal.com.

"So when the dollar rallies, it is intertwined with equity markets."

"The fact that the dollar is rallying strongly at the same time that the equity markets are rallying is no coincidence, as a strong dollar brings money into U.S. stocks and vice versa," Callow said. "But it's also indicative of sentiment. Today, the dollar surge you're seeing is a vote of confidence in the U.S. economy."

AOL shares recover


Concerns over Qwest's accounting did not carry through into the broader market

Shares of media company AOL Time Warner (AOL: up $0.68 to $11.58) bounced after declining sharply last week following the disclosure of a Securities and Exchange Commission probe of the company's accounting.

On Monday, a New York Times report said that AT&T (T: up $0.60 to $9.74) is seeking at least $1 billion from the parent of CNN/Money as a condition for accepting AOL's plan for dissolving Time Warner Entertainment, a joint venture.

On a positive note, J.P. Morgan said Monday that AOL's liquidity looks to be in good shape. In addition, the company's New Line Cinema unit's "Austin Powers in Goldmember" took in $71.5 million, a record July opening for a film.

But reminding investors of the accounting scandals that have plagued markets for months, telecom company Qwest Communications (Q: down $0.01 to $1.49) said it will restate financial reports for 1999 to 2001 due to more than $1 billion worth of sales improperly recorded.

The company already is under investigation by the Securities and Exchange Commission and the Department of Justice. CIBC World Markets said the company could possibly declare bankruptcy and that this would be a positive for the sector as a whole.

Psychology

However, some analysts said the fact that this latest scandal hurt only Qwest's shares, rather than a broader range of issues, was a positive for market psychology.

According to a number of market watchers, there was at least one other interesting psychological factor affecting trade Monday: the safe rescue this weekend of nine miners trapped in a collapsed Pennsylvania coal mine.

"This has been a psychologically driven market and this rescue takes people out of themselves," said Douglas Altabef, managing director at Matrix Asset Advisors.

"It's not something that will sustain us, but what will sustain us is the strong economy, the improved earnings and the fact that people are starting to take a more balanced look at corporate scandals. We're seeing that with the reaction to Qwest.

"It's not that we won't have up and down days," said Altabef. "But we've retested our fall [2001] lows and at some point, you stop retesting those lows."