Stocks Rally on Lower Oil, Strong Retail Reports

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Stocks rose in a broad based rally Monday as a strong earnings report from Lowe's boosted retailers' shares, while a slip in oil prices eased concerns about consumer spending, but a drop in manufacturing activity kept investors on edge.

The Dow Jones industrial average (search) ended up 112.17 points, or 1.11 percent, at 10,252.29. The Standard & Poor's 500 Index (search) rose 11.64 points, or 1.01 percent, to 1,165.69. The technology-laced Nasdaq Composite Index (search) climbed 17.65 points, or 0.89 percent, to 1,994.43.

Continuing weeks of declines, oil prices stayed below $49 a barrel, helping prospects for consumer spending. U.S. oil futures fell as low as $47.60 a barrel after OPEC pledged to keep pumping at full tilt. Crude for June delivery ended down 6 cents at $48.61 a barrel on the New York Mercantile Exchange (search).

"With the price of crude trading below $48 a barrel, that's somewhat of a catalyst to lift this market," said Weston Boone, vice president of listed trading at Legg Mason Wood Walker in Baltimore. "A lot of investors revolve around crude oil, and inventories are at six-year highs."

The good news on oil helped investors shrug off the latest reading of the Empire State Index (search), a measurement of New York's manufacturing sector and a barometer for the rest of the nation. The index dropped sharply this month, showing contraction in the sector when economists had expected strong manufacturing growth instead.

"The decline in the stock market last week was overdone and what was needed was an excuse to get things rolling," said Hugh Johnson, chief investment officer of Johnson Illington Advisors.

"It's hard to say what it was, but the decline in oil prices probably helped as much as anything and made investors buy stocks that are arguably undervalued," Johnson added.

Home improvement retailer Lowe's Cos. (LOW) jumped $1.49 to $54.35 after the company reported a 31 percent increase in quarterly profits, but added that its bottom line was hurt due to poor weather around the nation that kept do-it-yourselfers indoors. The company missed Wall Street's profit expectations by 2 cents per share.

The Dow average also got a boost from Lowe's larger rival Home Depot Inc. (HD), which climbed 3 percent to $37.37. Home Depot reports first-quarter results on Tuesday.

Citigroup's (C) stock rose 2 percent to $46.80 and helped lift the blue-chip Dow after financial weekly paper Barron's said the financial services company's dividend is likely to rise in the next year and its stock price could climb 20 percent to more than $55. For more details nN15407610.

Merger and acquisition activity continued to remain strong as corporate America continued to express its optimism in the economy by pursuing deals. United Parcel Service Inc. (UPS) gained 1.4 percent to $73.20after it announced an agreement to acquire smaller rival Overnite Corp. (OVNT) for $1.25 billion in cash — a 46 percent premium on Overnite's closing price Friday. Shares of Overnight surged 43.8 percent to $42.52 .

The drop in oil and other commodity prices sent investors looking for bargains in other sectors, including the long-dormant technology sector. And that has helped the Nasdaq, which has lagged behind the other major indexes, to gain ground.

"We're definitely seeing strength in the Nasdaq, in particular, and that's a healthy sign for the market," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "Of the times we've rallied over the past few years, a rally with the Nasdaq is far stronger than one where it's lagging."

The stock market's April slump hurt trading volume at E-Trade Financial Corp. (ETRD), which said volumes fell 8.9 percent from March and 27.4 percent from April 2004. The online brokerage and financial company said it was sticking to its 2005 profit forecasts, however. E-Trade slipped 10 cents to $12.

Brocade Communications Systems Inc. (BRCD) dropped 2.9 percent, or 12 cents, to $4.05 after the company said the Securities and Exchange Commission and the Justice Department are investigating how the company accounted for employee stock options. The company will have to restate earnings for the past three years, and possibly into 2001, but 2005 earnings will not be affected.

Adobe Systems Inc. (ADBE) climbed 3.1 percent to $59.91 after Robert W. Baird & Co. upgraded Adobe, saying a recent pullback in the software company's stock has created an attractive buying opportunity.

Shares of General Motors Corp. (GM) eased 6 cents to $30.92 in New York Stock Exchange trading after Prudential cut its rating on the automaker to "neutral weight" from "overweight."

Drug maker Pfizer Inc. (PFE) was up almost 1 percent at $28.10. The drug maker said its experimental drug, Sutent, improved survival rates and reduced tumor growth in patients with one type of stomach cancer in a pivotal-stage trial.

Trading was active, with 1.46 billion shares changing hands on the New York Stock Exchange, matching the 1.46 billion daily average for last year. About 1.41 billion shares were traded on Nasdaq, below the 1.81 billion daily average last year.

Advancing stocks outnumbered decliners on the NYSE by 23-to-9, and on Nasdaq by roughly 18-to-12.

The Russell 2000 index of smaller companies was up 9.69, or 1.66 percent, at 591.71.

Overseas, Japan's Nikkei stock average fell 0.92 percent. In Europe, Britain's FTSE 100 closed down 0.05 percent, France's CAC-40 dropped 0.17 percent for the session, and Germany's DAX index lost 0.32 percent.

Reuters and the Associated Press contributed to this report.