US stocks: Market rallies as oil eases, chip makers rise

NEW YORK - US stocks staged their biggest rally in nearly four months on Wednesday, as a dip in crude oil prices tempered worry about rising energy costs, while tech shares got a lift from an upbeat earnings report from chip maker Micron Technology Inc.

Traders also attributed Wednesday's gains to technical strength. On Tuesday, the S&P 500 hit an intraday low for 2005, while the Nasdaq closed at a fresh 2005 low, but investors were encouraged that stocks did not fall below those levels.

Micron, the world's No. 3 maker of computer memory chips, rose 3.6 per cent to US$10.48 a day after it reported a quarterly profit, reversing a year-earlier loss. The Philadelphia Stock Exchange semiconductor index climbed more than 2 per cent.

Micron also said it gained market share from rivals based in South Korea and Germany.

Crude for May delivery settled at US$53.99 a barrel, down 24 cents, after a government survey showed crude inventories rose sharply last week. Earlier in the day, oil had traded down more than US$1.00 a barrel, but pared losses late as heating oil rallied.

The Dow Jones industrial average was up 135.23 points, or 1.30 per cent, to close at 10,540.93, while the Standard & Poor's 500 Index was up 16.05 points, or 1.38 per cent, to end at 1,181.41. The Nasdaq Composite Index was up 31.79 points, or 1.61 per cent, to finish at 2,005.67.

"We had a nice technical bounce back from yesterday," said Mark Bryant, senior vice president at Brean Murray. "And add to that, the fact that oil acted pretty well, meaning it did end lower. Those are the factors that have been driving the market today. "

Trading was active, with 1.68 billion shares changing hands on the New York Stock Exchange, above the 1.46 billion daily average for last year. About 1.75 billion shares were traded on Nasdaq, just under the 1.81 billion daily average last year.

The number of rising stocks outnumbered those on the decline by more than 3-to-1 on the NYSE. On Nasdaq, advancers outpaced decliners by about 2-to-1.

A government report on gross domestic product affirmed the US economy grew at a 3.8 per cent annual pace in the fourth quarter, though the figure was not as strong as the 4 per cent that Wall Street expected.

The GDP figure, showing the economy growing at a brisk, albeit slower-than-expected pace, soothed some worry that the Fed will become more aggressive in raising interest rates.

Industrial companies, such as heavy equipment maker Caterpillar Inc., lent support following steep declines on Tuesday.

Both Merrill Lynch and Bear Stearns said in research notes on Wednesday that Caterpillar's stock offered a buying opportunity. Caterpillar rose 1.9 per cent to US$91.48.

Intel Corp., the world's biggest chipmaker, rose 1.5 per cent to US$23.49. Its chief executive said it was enjoying "reasonable growth" this year so far, as demand for its Centrino chips for laptop computers remains strong.

Shares of American Airlines' parent AMR Corp. surged 11.1 per cent, or US$1.10, to US$11.03 after Merrill Lynch raised its investment rating on the company to "buy" from "neutral. "

But American International Group Inc. fell 1.8 per cent to US$57.16 and was the only Dow component to end lower.

The insurer admitted that its accounting for a deal under investigation by regulators was improper. It also said accounting adjustments might cut shareholder equity by as much as US$1.66 billion from the amount reported on Dec. 31.

Ratings agency Standard & Poor's also further lowered the insurer's top debt ratings, pulling its prestigious "AAA " credit rating, and put the company on "creditwatch negative, " signalling more cuts may come.

- REUTERS