Dow surges on Microsoft outlook

Buyers returned to Wall Street in earnest today, lured by Microsoft’s upbeat outlook and lower prices after three days of declines. Investors sent stocks sharply higher, pushing the Dow Jones industrials up nearly 140 points.

“Microsoft is setting the tone. People were looking for that big giant to say something good, and they did,” said Todd Clark, head of listed equity trading at Wells Fargo Securities.

The Dow closed up 137.33, or 1.5%, at 9,188.15. The gain more than wiped out the 126.33-point loss from the previous three sessions.

The broader market also rallied after suffering three straight declines of its own. The Nasdaq composite index rose 10.49, or 0.6%, to 1,708.51, having dropped 49.95 points on Thursday, the biggest one-day loss in four months.

The Standard & Poor’s 500 index advanced 11.59, or 1.2%, to 993.32.

But today’s advances were not enough to make it a winning week on Wall Street.

The market’s major gauges ended mixed – the Dow rose 0.8%, but the Nasdaq fell 1.5% and the S&P forfeited 0.5%.

Today’s rally was owed largely to Microsoft. Although the software maker missed quarterly earnings expectations by a penny late on Thursday, it announced that it was raising its outlook for the fiscal year 2004. That was just the kind of news investors were craving, and Microsoft rose 39 cents to 27.08.

Analysts also attributed today’s rally to investors generally feeling more confident the US economy will recover in the second half of the year and believing that now is the time to buy stocks in anticipation of that.

“We are back to almost a momentum driven market. Everyone wants to be invested. ... It is a herd mentality,” said Michael Murphy, head trader at Wachovia Securities in Baltimore. “People are looking for reasons to buy stocks, not looking for reasons to sell.”

Investors have been bidding stocks higher since the middle of March after companies reported surprisingly strong first-quarter results.

The Nasdaq has had the largest advance from the market’s March 11 lows, and was up 34.4% at the end of today’s session. The Dow has risen 22.1% since March 11, while the S&P has gained 24.1%.

A disappointing reading on the mood of consumers weighed on the market in early trading, but the urge to pick up cheaper-priced stocks won out.

The University of Michigan’s preliminary reading on consumer sentiment came in at 90.3, up from 89.7 in June. Analysts predicted sentiment would increase to 90.5.

Gainers included KeyCorp, which advanced 73 cents to 26.24 on second-quarter profits that beat the analysts’ estimate by a penny a share.

Continental Airlines rose 31 cents to 14.42 after Bear Stearns upgraded it to “outperform” from “peer perform”. The move came a day after the company posted a smaller-than-expected second-quarter loss.

McDonald’s, also upgraded to “outperform” by Bear Stearns, climbed 90 cents to 21.39.

But Mattel slipped 10 cents to 19.75 after missing quarterly earnings expectations by 2 cents a share.

Advancing issues outnumbered decliners more than 2 to 1 on the New York Stock Exchange. Volume was light.

The Russell 2000 index, the barometer of smaller company stocks, rose 4.83, or 1.1%, to 464.76.

Elsewhere, Japan’s Nikkei stock average finished up 0.3%, France’s CAC-40 ended Friday essentially flat, slipping 0.01%, the FTSE 100 advanced 0.4% and Germany’s DAX index gained 1.1%.