US stocks surge

Wall Street soared today, propelling the Standard & Poor's 500 index and Dow Jones industrials to record highs as bright spots among generally sluggish retail sales allowed investors to cast aside concerns about the health of the US economy.

The rally, which included the Dow's biggest one-day gain since March 2003, was surprising given that there was no extraordinary announcement or other catalyst usually seen with such a huge gain.

It also came before most companies have announced their second-quarter earnings.

The rise marked a sharp contrast to the start of the week, when stocks plunged amid concerns that some hedge funds could buckle under ill-placed bets on the housing sector.

But investors, heartened by signs of a happy and spending consumer, clearly decided to put some bets on the table.

Although retail sales generally appeared to be squeezed last month by higher fuel prices and a tepid housing market, and the outlook for the coming months was difficult to ascertain, the overall reading was not as grim as some investors expected.

Several reports beat Wall Street expectations - notably that of Wal-Mart Stores, the world's largest retailer and owner of Asda, which posted a better-than-expected 2.4% jump in sales at stores open at least a year.

"It's a relief that things weren't as bad as people expected," said Bill Schultz, chief investment officer at McQueen, Ball & Associates, referring to the retailers' reports and the US economy at large.

"We're maybe getting slower growth but not the fall off the cliff economic scenarios," he said of investors' reading of the economy.

But, Schultz said of the rally: "I think it is, over the near-term, a little bit over done, certainly on a two-day basis."

The S&P 500 rose 28.94, or 1.91%, to 1,547.70, above its record close of 1,539.18, set on June 4.

The Dow shot up 283.86, or 2.09%, to 13,861.73; its previous record close was 13,676.32, also set on June 4.

The Nasdaq composite index rose 49.94, or 1.88%, to 2,701.73. The index, bloated by the late 1990s tech boom, is nowhere near its closing record of 5,048.62, set in March 2000.

The report from Wal-Mart, one of the 30 companies that make up the Dow, helped ease some investors' worries about the health of the consumer ahead of the Commerce Department's report on US retail sales, out tomorrow.

"This is the first positive month Wal-Mart has had in a while," said Doug Roberts, chief investment strategist for investment research company Channel Capital Research, citing one reason for the market's move higher.

"The market has a split personality. This is the other side of the personality," he said, referring to the turnaround of sentiment from Monday.

"The kind of disaster situation that everybody was preparing for doesn't seem to be playing out."

Stocks' ascent today after mostly unremarkable trading in recent weeks could also reflect so-called short covering. Investors who sell stocks short are betting the stock will fall and can be forced to buy stocks when markets move higher.

Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 5.13% from 5.09% on Wednesday.

The dollar was generally lower against other major currencies, dropping to a new record low versus the euro and a 26-year low against the pound. Gold prices rose.

Wall Street, whose advance this year has been powered in part by a cascade of buyout news, received an additional boost after mining company Rio Tinto offered to buy Canadian aluminium producer Alcan for $38.1bn (€27.6bn).

The offer topped a bid from Alcoa that Alcan's board rejected in May. Alcoa said after the closing bell that it is dropping its bid.

Alcan and Alcoa shares jumped today following Rio Tinto's move to top Alcoa's hostile bid for Alcan.

Alcan rose 8.85, or 9.9%, to 98.45, after hitting a 52-week high of 99.97. Alcoa shares rose 2.86, or 6.7%, to 45.29, topping a 52-week high of 42.90.

Among retailers surprising Wall Street, JC Penney posted a narrower-than-expected decline in its June same-store sales and reiterated its second-quarter profit forecast to match analyst expectations. The department store chain rose 4.30, or 6%, to 75.46.

American Eagle Outfitters, a youth clothing retailer, saw its June same-store sales jump 8%, nearly double the increase the Street expected. American Eagle rose 1.68, or 6.5%, to 27.71.

But Macy's fell 1.16, or 2.9%, to 39.25 after the parent of the Macy's and Bloomingdale's chains posted same-store sales that came in well below forecasts and after reducing its second-quarter outlook.

Trading is likely to remain volatile while the market awaits the bulk of second-quarter earnings reports. Analysts are keeping expectations low - especially after profit warnings this week from cell phone maker Motorola, and retailers Home Depot and Sears Holdings.

Roberts noted that the low volume typical of the summer months had resulted in some higher volatility.

"It tends to bounce back and forth, but over all the market is grinding higher. How much higher remains to be seen."

Economic data released today seemed overshadowed by the retail sales reports and news from the aluminium sector. The Commerce Department said the international trade balance widened to $60.04 billion in May, as expected, from $58.5bn (€42.4bn) in April.

The Labour Department reported that the number of people seeking unemployment claims fell to 308,000 last week - the lowest level in almost two months and a decline of 12,000 from a week earlier.

Advancing issues outnumbered decliners by 3 to 1 on the New York Stock Exchange, where volume totalled 1.66 billion shares compared with 1.44 billion traded on Wednesday.

The Russell 2000 index of smaller companies rose 15.21, or 1.81%, to 855.18.