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CBS MarketWatch
U.S. shares end session on an upswing
Tuesday July 8, 5:13 pm ET
By Julie Rannazzisi


NEW YORK (CBS.MW) -- Propelled by a rally in technology shares and buoyed by a number of merger announcements, U.S. stocks rose for a second straight session Tuesday, with the Nasdaq closing near 15-month highs.
In the tech sector, EMC announced it was snaring Legato Systems and in the broader market, ArvinMeritor staged a hostile bid for Dana Corp. Finally, trucker Yellow Corp. announced it would buy rival Roadway.

Strategists said the recent pickup in merger and acquisition deals is an encouraging sign for future economic activity.

"It shows that there's growing optimism business has bottomed. Companies are now in the mindset of expanding their businesses," remarked John Hughes, equity analyst at Epiphany Equity Research.

The Dow Jones Industrial Average (CBOT^DJINews) ended up 6.30 points, or 0.1 percent, to 9,223.09 after spending most of the session in the minus column. Intel and United Technologies, two of the index's biggest gainers, reached fresh 52-week highs in intraday action.

The Nasdaq Composite (NasdaqSC^IXICNews) rallied 25.75 points, or 1.5 percent, to 1,746.46 and the Nasdaq 100 Index (NasdaqSC^NDXNews) rose 16.48 points, or 1.3 percent, to 1,298.37.

The Standard & Poor's 500 Index (CBOE^SPXNews) edged up 0.3 percent while the Russell 2000 Index (CBOE^RUTNews) of small-capitalization stocks gained 1.8 percent.

Upbeat news drove retail shares higher. Airline, brokerage and biotech issues were also on a roll while investors snubbed gold, utility and drug stocks.

Citing low valuations, Merrill Lynch moved the health-care sector to an "overweight" ranking in a model portfolio from its prior "equal weight" view while reducing exposure to technology and consumer discretionary companies.

"Pharmaceuticals remain the most attractive industry in the sector, based largely on their valuations. These stocks appear undervalued even with their reduced growth expectations," Merrill chief U.S. strategist Richard Bernstein told clients.

Bernstein's more negative stance on the tech and consumer discretionary sectors stems from his belief that group fundamentals are not keeping pace with recent advances in price.

Analysts caution that stocks could be vulnerable to a correction if bellwether companies unfurl disappointing results during the upcoming earnings season or provide less-than-stellar outlooks.

Despite this near-term uncertainty, Alexander Paris of Barrington Research is confident that equities are finally on the mend after a brutal three-year bear market.

"It is not unreasonable to be concerned that the market may have gotten ahead of itself, that it may be discounting a bigger boom than will prove to be the case. But it is difficult to imagine a new set of circumstances that could drive the market to significant new lows over the next year or so," Paris said.

Volume totaled 1.52 billion on the NYSE and 2.01 billion on the Nasdaq Stock Market. Advancers took out decliners by 18 to 14 on the NYSE and by 21 to 11 on the Nasdaq.

Merger activity heats up
Storage leader EMC (NYSEEMCNews) fell 4.3 percent after announcing it would nab software maker Legato (NasdaqNMLGTONews) for $1.3 billion. EMC said the deal would contribute slightly to its earnings next year and also said its second -quarter earnings could "meet or exceed" current analyst expectations. Legato sprinted 8.9 percent.

In the meantime, auto-parts maker ArvinMeritor (NYSEARMNews) proposed to purchase Dana Corp. (NYSEDCNNews) in a deal valued at about $4.4 billion, including the assumption of debt. Dana urged its shareholders to reject -- or defer making a decision -- on ArvinMeritor's buyout offer until its board of directors can evaluate the deal. Dana surged 34.8 percent while ArvinMeritor slid 3.4 percent.

Finally, Yellow Corp. (NasdaqNMYELLNews) said it will snap up rival Roadway Corp. (NasdaqNMROADNews) for about $966 million in stock and cash. Roadway zoomed 52.8 percent while Yellow gave up 5.1 percent.

Retailers advance; Kodak, Honeywell lower
Retail stocks (CBOE^RLXNews) took heart in the healthy June same-store sales results from Rite Aid (NYSERADNews) , CVS Corp. (NYSECVSNews) and Chico's FAS (NYSECHSNews) . Chico's led on the upside, putting on almost 13 percent and racing to a 52-week high. See retail sector story.

And Dollar Tree Stores (NasdaqNMDLTRNews) put on 0.6 percent after raising its fiscal second-quarter revenue outlook in an 8-K filing with the U.S. Securities and Exchange Commission late Monday

Another piece of good news for the retail sector came in the shape of a 0.7 percent increase in U.S. chain store sales for the week ended July 5, according to the Bank of Tokyo-Mitsubishi/UBS Index.

General Motors (NYSEGMNews) rallied 1.9 percent and was among the Dow's best performers after announcing a marketing campaign featuring zero percent financing for five years and cash rebates.

Analyst actions on two Dow components pulled shares lower on Tuesday. Smith Barney sliced its 2003 earnings projection on Eastman Kodak (NYSEEKNews) , citing a less optimistic outlook for the company's consumer film business, sending shares 1.1 percent lower.

And Merrill Lynch lowered its 2003 and 2004 earnings estimates for Honeywell (NYSEHONNews) , feeling the company's margin projections for its aerospace and automation and control units may be too aggressive. Still, Merrill conceded the industrial conglomerate is among the better positioned to benefit from an economic recovery. Honeywell fell 0.9 percent.

In other brokerage actions, Sanford Bernstein downgraded its view on Eli Lilly (NYSELLYNews) to a "market perform" rating from an "outperform," citing little upside in its earnings potential until 2004. The stock stumbled 1.6 percent.

Ingram Micro (NYSEIMNews) took off 10.4 percent after Merrill Lynch raised the computer hardware and software firm to a "buy" rating from a "sell" on belief it'll benefit from a seasonal pick up in demand during the second half of the year.

Lehman Bros. upgraded chipmakers Broadcom (NasdaqNMBRCMNews) and Marvell Technology (NasdaqNMMRVLNews) to "overweight" ratings from an "equal weight" on belief that fundamentals remain solid. Broadcom put on 3.4 percent and Marvell 3.9 percent, both reaching new 52-week highs.

And Tellabs (NasdaqNMTLABNews) sprinted 1.7 percent following a UBS upgrade to a "neutral" rating from a "reduce" on valuation while Check Point Software (NasdaqNMCHKPNews) put on 4.3 percent after Prudential hoisted its view to a "buy" from a "hold" on improving spending trends.

Lucent Technologies (NYSELUNews) was the most actively traded issue on the NYSE, falling 4.5 percent after Deutsche Bank sliced its 2003 and 2004 revenue estimates on the company, citing increased worries over flagging mobile phone sales trends.

In earnings news, Pepsi Bottling Group (NYSEPBGNews) firmed 7.3 percent after reporting second-quarter earnings that surpassed Wall Street's estimates. But Scholastic Corp. (NasdaqNMSCHLNews) , the U.S. publisher of the Harry Potter books, slid 4.8 percent after lowering late Monday its fiscal fourth-quarter and full-year earnings estimates. Downgrades from Prudential and Goldman Sachs ensued.

Dow component Alcoa (NYSEAANews) unfurled its second-quarter results after the close of trade, beating analysts' profit expectations.

Check Movers & Shakers for the latest individual stock action.

Treasurys mixed; U.S. dollar spikes higher
Government bonds ended a volatile session with moderate gains, though benchmark yields continued to hover at two-month highs.

The 10-year Treasury note rose 1/8 to yield (CBOE^TNXNews) 3.725 percent while the 30-year government bond climbed 15/32 to yield (CBOE^TYXNews) 4.72 percent.

In the currency sector, the U.S. dollar raced higher against its major counterparts, climbing 0.1 percent to 118.20 yen as the euro fell 0.1 percent to a fresh two-month low of $1.1313.