Stocks Extend Gains on Good News From Chip Sector

NEW YORK – Stocks extended their gains Tuesday as Wall Street received upbeat news from the semiconductor sector, tempering the impact of troubling economic data.

The semiconductor sector got a boost from Lucent Technologies Inc., which said it expects its sales to rise despite market weakness. Specialty chip maker Xilinx Inc. also reported positive news.

That helped overshadow the latest economic reports, including one showing a steep drop in productivity that appeared to cloud prospects for a return to a high-growth, low-inflation environment in the United States.

The Nasdaq Composite Index was up 77.73 points, or 3.61 percent,  to close at 2,233.66. The Dow Jones industrial average was up 114.32  points, or 1.03 percent, to close at 11,175.84. The broader Standard & Poor's 500 Index gained 16.46 points to close at 1283.57.

"There's a growing optimism that we've pretty much hit the bottom, so people are not really paying attention to the (bad) news,'' said Edgar Peters, chief investment strategist at Boston-based PanAgora Asset Management Inc. "They've already taken it into account and now it's time to look forward and they think things are going to be better."

Tuesday's rise was the fourth in a row for the Nasdaq, a string of wins unseen since mid-May. Year to date, the Dow is up 3.6 percent, the S&P 500 is down 2.8 percent, and the Nasdaq composite is down 9.6 percent.

Lucent, the most heavily traded share on the New York Stock Exchange, gained 49 cents, or more than 6 percent, to $8.49 after the struggling telecommunications maker said it remained confident in its ongoing restructuring plan and has accelerated its cost-cutting efforts.

The semiconductor group also got a boost from specialty chip maker Xilinx Inc., which said late on Monday that its financial outlook for the fourth quarter remains unchanged and that order cancellations and delays have slowed. Its shares jumped $4.37 to $45.96.

Telecommunications software maker Comverse Technology Inc. was also bolstered after it said late Monday its quarterly earnings rose 40 percent, boosted by new orders and expanding market share. Its shares leaped more than 15 percent, or $8.86, to $67.52.

On the economic front, the government reported revised first-quarter U.S. productivity fell 1.2 percent, its biggest drop since the first quarter of 1993 and much deeper than consensus expectations for 0.8 percent drop.

The report also showed unit labor costs rose a bigger-than-expected 6.3 percent, its largest jump since the final quarter of 1990.

While the reports raise the specter of inflation, investors are willing to look the other way amid hopes that will not stop the Federal Reserve from cutting interest rates further to curb the U.S. economic slowdown, said Paul Cherney, market analyst at S&P Marketscope.

Still, there is little to catapult the market higher, Cherney said. "There's going to be a great reluctance to commit on the part of money managers without something more definitive in terms of understanding we've turned the corner."

But that was not evident in recent economic data. The National Association of Purchasing Management's non-manufacturing index, which measures the service sector of the economy, showed a drop to 46.6 in May — well below analysts' consensus estimates for a reading of 47.8 — from 47.1 in April.

The government reported at mid-morning that U.S. April factory orders fell 3.0 percent following a revised gain of 0.7 percent in March. Economists in a Reuters survey had expected a drop of 2.8 percent in April.

Advancing issues led decliners nearly 2 to 1 on the New York Stock Exchange. Volume came to 1.11 billion, ahead of the 835.44 million reported Monday.

The Russell 2000 index rose 9.16 to 516.48.

Overseas, Japan's Nikkei stock average fell nearly 1.0 percent. European stocks fared better. Germany's DAX index advanced 1.0 percent, Britain's FT-SE 100 rose 1.1 percent, and France's CAC-40 gained 1.5 percent.

— Reuters and the Associated Press contributed to this report.