Dow up 115 as stocks rise for a third day

By Charley Blaine and Elizabeth Strott

Stocks closed higher for a third straight day, but profit-taking in the last half-hour of trading kept the market from becoming irrationally exuberant.

At the close, the Dow Jones industrials were up nearly 115 points, or 0.9%, to 12,685. The blue-chip index had been up as much as 164 points before some traders decided to cash in profits.

The Standard & Poor's 500 Index, up nearly 16 points at 1 p.m. ET, closed up 9 points, or 0.7%, to 1,381, and the Nasdaq Composite Index was up about 18 points, or 0.7%, to 2,345. But the index had been up nearly 34 points.

Today's rally came as crude oil closed at a record high of $100.88, up 1.7% from Monday, and the euro hit a new high against the dollar. The euro peaked at $1.4985 this afternoon, surpassing its old high of $1.4968, set in November. Crude's big jump raised fears that gasoline could hit $4 a gallon soon.

With today's finish, the Dow is up 400 points since Thursday, its best three days of the year. But it should be noted that it was only the second three-day streak of what's been a tricky year. The Dow is still down 4.4% on the year. The S&P 500 is off 5.9%, and the Nasdaq is bringing up the rear, down 11.6%.

Those who watch market technicals closely will note that the pullback from today's highs began right after the S&P 500 crossed its 50-day moving average of 1,386 at 1 p.m. ET. That seemed to trigger some selling. A second run at 1,386 -- this one at 2:45 p.m. -- also failed.

So, a big question going forward is whether the index can move above 1,386 and stay there.

• Get free, real-time stock quotes on MSN Money

Today's rally was started when IBM Corp. (IBM, news, msgs) boosted guidance for the second quarter and announced a $15 billion stock buyback, along with a new faster computer that reduces energy costs.

Big Blue finished the day up 3.9% to $114.38 and contributed 32 points to the Dow's gain.

IBM now expects to earn at least $8.25 per share in 2008. The company's previous guidance was for between $8.20 and $8.30 per share.

IBM's gain pulled the other tech stocks in the Dow higher. Intel (INTC, news, msgs) was up 3.8% to $20.69. Hewlett-Packard (HPQ, news, msgs) added 2.2% to $49.20, and Microsoft (MSFT, news, msgs) was up 2% to $28.38, although the stock had been up as much as 3.7% just before 3 p.m. ET. (Microsoft is the publisher of MSN Money.)

In addition, IBM was a big reason for gains in the Nasdaq and the Nasdaq-100 Index ($NDX.X). The Nasdaq-100 was up 6.6 points, or 0.4%, to 1,791. Its overall gain was held back, however, by a 4.5% sell-off in shares of Google (GOOG, news, msgs).

The market also got a lift when Moody's Investors Service reaffirmed a AAA rating for bond insurer MBIA (MBI, news, msgs). That news pushed the stock 4.8% higher to $15.28. When Standard & Poor's reaffirmed its AAA rating for MBIA on Monday, the stock jumped nearly 20% and set off the Dow's big rally. The Moody's announcement offset MBIA's decision late Monday to suspend its dividend to help preserve capital.

Despite awful housing news today, home builders were among the best-performing groups. CNBC's Mary Thompson suggested the rally for the group was a result of bottom-fishing, some short-covering, and a comment by Donald Kohn, the vice chairman of the Federal Reserve Board, that maintaining growth was more important than fighting inflation just now.

Centex (CTX, news, msgs) jumped 9.3% to $26.05. Lennar (LEN, news, msgs) was up 8.7% to $20.41. The Philadelphia Housing Sector Index ($HGX.X) rose 3.6% to 146.

• Record housing drop hurts coasts worst

$100 crude until June; higher pump prices ahead

Futures trading suggests crude could stay at $100 a barrel at least until June. Gasoline prices have been moving higher in response to crude's most recent move. AAA's daily survey showed the national average price of regular unleaded gas at $3.142 a gallon, up from $3.137 on Monday and up nearly 16 cents a gallon in the last month.

According to the Energy Department’s latest forecast, gasoline prices should peak near $3.40 a gallon this spring, The New York Times reported this afternoon. That figure would match the inflation-adjusted record price for gasoline that was reached in early 1981.

Crude's move was partly in reaction to the dollar's fall, but it was also part of a larger commodity rally. Wheat surged 8.0% to $12.14 per bushel, a new high.

While a falling dollar makes traveling to, say, Europe very expensive, it also makes U.S. exports cheaper and makes this country a magnet for foreign tourists and investors looking to buy U.S. assets at cheaper prices.

Crude's big move helped energy shares move higher. ExxonMobil (XOM, news, msgs) was up 0.9% to $89.89. Chevron (CVX, news, msgs) was up 1.1% to $88.12. The Amex Oil Index ($XOI.X) rose 1.6% to 1,467. The Philadelphia Oil Service Sector Index ($OSX.X) rose 2% to 291. Schlumberger (SLB, news, msgs) rose 1.8% to $89.10.

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$100.88	$99.23	$1.65	9.95%	5.11%
Heating oil (per gallon)	$2.8150	$2.7853	$0.0297	11.07%	6.25%
Natural gas (per million BTU)	$9.2060	$9.1860	$0.0200	14.02%	23.03%
Unleaded gasoline (per gallon)	$2.5505	$2.5419	$0.0086	10.45%	2.40%

Bernanke testimony, new-home-sales report on tap

Wednesday's market will key on Federal Reserve Chairman Ben Bernanke's testimony to Congress about the economy. The Fed boss repeats his performance on Thursday.

Also, given the rally in home building stocks today, how the market reacts to Wednesday's new-home-sales report will be important.

Traders will watch earnings from Limited Brands (LTD, news, msgs), home builder Toll Bros. (TOL, news, msgs) and Nortel Networks (NT, news, msgs).

Inflation worries creep in

Higher energy and food prices sent producer prices surging in January.

The Producer Price Index jumped 1% in January, the Labor Department reported this morning -- much higher than the 0.4% increase economists had expected. The PPI had fallen 0.3% in December.

Core PPI, which excludes volatile food and energy prices, rose 0.4% last month, slightly higher than the consensus estimate. Year over year, the PPI is up 7.4%.

Companies from Kellogg (K, news, msgs) to Hershey (HSY, news, msgs) have raised prices on their products because of surging costs for commodities like wheat and cocoa.

The Federal Reserve has been struggling to monitor inflation growth while keeping the economy on track, but some critics worry that the Fed has cut rates too much and too quickly, and "stagflation" -- when inflation rises and economic growth slows -- has returned to the economic vocabulary.

• Jubak: Remember 'stagflation'? It may be back

Still, former Treasury Secretary Larry Summers said stagflation is not a huge concern.

"I just don't see (stagflation) as anywhere near around the corner right now in the U.S.," Summers, now managing director of D.E. Shaw Group, said on CNBC this morning. "I think you have inflation expectations pretty securely anchored in the 2-plus-percent range. If you think back to the 1970s, where people were thinking they were going to lose half the value of their money in a year, I don't think we're anywhere near that kind of thing."

Retailers rock on

It was a lovely day for many retailers. Shares of Macy's (M, news, msgs) rose 7.1% to $26.52 today after the department store chain reported better-than-expected fourth-quarter earnings.

Macy's earned $750 million, or $1.73 per share, up from $733 million, or $1.40 per share, and ahead of Wall Street's estimate of $1.60 per share.

• Video: Using kids as tax deductions

Target (TGT, news, msgs) reported a decline in profit, but its fourth-quarter earnings also beat analysts' consensus estimate.

The discount retailer reported earnings of $1.03 billion, or $1.23 per share, an 8% drop from the $1.12 billion, or $1.29 per share, the company earned in the same period a year ago. Analysts had expected Target to earn $1.22 per share.

Revenue rose about 1% to $19.87 billion, shy of the consensus estimate of $20 billion, but shares rose 3.1% to $54.89 on the day.

Meanwhile, upscale department store chain Nordstrom (JWN, news, msgs) late Monday said a "challenging consumer and retail environment" hurt its results for the fourth quarter -- but the company also beat Wall Street's consensus estimate.

Nordstrom reported profit of $212 million, or 92 cents per share, an 8.6% decline from the $232 million, or 89 cents per share, the company earned in the same period a year ago.

Revenue fell 4.4%, to $2.5 billion. Analysts had been looking for earnings of 90 cents per share on revenue of $2.55 billion.

Shares of Nordstrom climbed 4% to $38.46 today.

Google falls after analyst cuts price target

Google shares tumbled more than $22 to $464.19 today after a UBS analyst chopped his price target on the online-search giant to $590 from $650.

"A reset of near-term investor expectations as well as continued bearish sentiment may mean the ride is bumpy over the next few months," analyst Benjamin Schachter wrote in a note to clients today.

The number of paid ads viewed on Google fell 12% from the previous quarter, according to online research company ComScore.

Google is down 33% this year. Since the stock hit an intraday high of $747.24 on Nov. 7, the stock has fallen about 38%.

Home Depot gets hammered

The housing slump slammed Home Depot (HD, news, msgs) in the fourth quarter. But investors didn't care and bid the stock up 1 cent to $28.83.

The home-improvement retailer this morning reported earnings of $671 million, or 40 cents per share. That's a 27% decline from the $925 million, or 46 cents per share Home Depot earned in the same quarter a year ago.

• Video: The inside skinny on Home Depot's earnings

Results missed the consensus estimate of 43 cents per share, and Home Depot cautioned that earnings could drop by up to 24% this year.

Home Depot reported a slight increase in sales for the quarter, up 1.5% to $17.66 billion, but the retailer also gave a disappointing sales forecast, stating that sales would likely fall 4% to 5% in 2008.

"Consumers are still buying masking tape and light bulbs, but the need to do a kitchen remodel is obviously getting pushed out," Laura Champine, an analyst with Morgan Keegan, said to Bloomberg News.

Home Depot said it will open 55 new stores this year, about half the number of stores the company opened last year.

For all of 2007, Home Depot earned $4.4 billion, or $2.37 per share, down from $5.76 billion, or $2.79 per share, in 2006.

Foreclosures jump; home prices fall

Meanwhile, the weak housing market continued to plague struggling homeowners.

The number of foreclosures soared 57% in January from year-ago data, according to online foreclosure tracker RealtyTrac. The number of properties that were in some stage of foreclosure jumped to 233,001 last month, an 8% increase from December, RealtyTrac said.

Nevada had the highest foreclosure rate, with 6,087 foreclosures filed. California, Florida, Arizona, Colorado, Massachusetts, Georgia, Connecticut, Ohio and Michigan rounded out the top 10.

Metropolitan areas in California and Florida accounted for eight of the 10 metro areas with the highest foreclosure rates.

A separate report this morning showed that home prices fell 8.9% across the U.S. in the fourth quarter of 2007, the biggest decline in two decades.

• Video: Inside the home price index

The S&P/Case-Shiller home price index showed a decline in home prices in 17 of 20 cities, with the biggest yearly declines in Florida. Home prices fell 17.5% in Miami, with Las Vegas prices down 15.3%.

Home prices fell 9.1% in December 2007 from 2006. That's the 12th month in a row the index showed a decline.

Short hits from the markets -- 4 p.m.

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	2.075%	2.110%	-0.035	10.96%	-33.92%
5-year Treasury note yield	2.888%	2.947%	-0.059	2.19%	-16.41%
10-year Treasury note yield	3.860%	3.902%	-0.042	6.07%	-4.34%
30-year Treasury bond yield	4.657%	4.664%	-0.007	6.96%	4.44%
Currencies
U.S. Dollar Index	74.790	75.585	-0.795	-0.66%	-2.48%
British pound in dollars	$1.9877	$1.9677	0.0199	-0.20%	-0.08%
Dollar in British pounds	£0.5031	£0.5082	-0.0051	0.20%	0.08%
Euro in dollars	1.4986	1.4837	0.0149	0.78%	2.53%
Dollar in euros	€ 0.6673	€ 0.6740	-0.0067	-0.77%	-2.47%
Dollar in yen	¥107.23	¥108.08	-0.85	0.77%	-4.13%
U.S. dollar in Canadian dollars	$1.019	$0.995	$0.0140	1.92%	2.60%
Canadian dollar in U.S. dollars	$0.982	$1.005	-$0.0130	-1.87%	-2.52%
Commodities
Gold	$948.90	$940.50	$8.40	0.12%	13.23%
Copper	$3.7925	$3.7570	$0.04	-0.28%	24.71%
Silver	$18.8410	$18.2020	$0.64	4.47%	26.28%
Crude oil (NYMEX) (per barrel)	$100.88	$99.23	$1.65	2.09%	5.11%