Dow up 187; can the rally hold?

By Charley Blaine and Elizabeth Strott

Big rallies for financial and technology shares sent the stock market higher today, boosting hopes that the swoon since last fall may be over.

At the close, the Dow Jones industrials were up 187 points, or 1.5% to 12,549. The Standard & Poor's 500 Index was up 20 points, or 1.5%, to 1,350, and the Nasdaq Composite Index was up 69 points, or 3%, to 2,327.

The immediate catalyst was JPMorgan Chase's (JPM, news, msgs) decision to boost its offer for crippled investment bank Bear Stearns (BSC, news, msgs) to $10 a share. The announcement sent Bear Stearns shares nearly doubling to $11.40. The 89% gain was the largest among S&P 500 stocks. JPMorgan shares closed up 1.3% to $46.55.

Also helping the day's euphoria was a report on existing-home sales that suggested the housing market is beginning to stabilize. Home-building shares surged; Lennar (LEN, news, msgs) was up 6% to $18.78. Ryland (RYL, news, msgs)was up 4.9% to $34.43.

Meanwhile, the Justice Department's approval of a merger between XM Satellite Radio (XMSR, news, msgs) and Sirius Satellite Radio (SIRI, news, msgs) cheered some investors. Both stocks shot higher.

The fact was, however, that after big rallies on Tuesday and Thursday, the market was probably going to rise today no matter what.

Several market groups that had been battered repeatedly in recent months were starting to look stronger, including real estate investment trusts, home builders, commercial banks and semiconductors.

• Video: Has the market turned a corner?

And market bulls were predicting more gains ahead, in part because rebound since JPMorgan Chase's deal for Bear Stearns was announced. Since their lows on May 17, the first trading day after the agreement was struck, the Dow is up 6.7%, the S&P 500 7.4% and the Nasdaq nearly 8%. The S&P 500 financial sector is up 14.5% in the same time period.

"There are a lot of things pointing to why we're moving in the right direction," Art Hogan, chief market strategist at Jefferies & Co., told Dow Jones. These include last week's sell-off in commodities, increased trading volume and the recent testing of lows.

The market today offered a potentially important signal: The S&P 500's close at 1,350 was its first above its 50-day moving average -- now about 1,344 -- since December. That could establish a new support level for the market going forward. It may take a week or so to confirm that the support level has been established.

That support is forming does not mean the market will challenge the highs of last October any time soon. It could simply mean the market may trade in a narrow range for some time.

Even with Monday's close, the Dow is more than 1,600 points, or 11%, under its Oct. 9 closing high.

And there are enough uncertainties in the economy -- can you say 'housing market' or 'troubled banks'? -- that the support level could fall apart and the S&P 500 could test 1,256.98, its March 17 low.

Plus, it's not clear yet how much short-covering is pushing the market higher; it seemed to be a big factor today with tech stocks. Short-sellers sell shares borrowed from brokers. They make their profits when they buy the shares back and return them to the brokers -- covering their positions. Short-covering has triggered many one-day rebounds in recent months.

Today's rally looks a bit different, however. It looked to be a continuation of a rebound that began a week ago, when the Federal Reserve cut its key interest rates. The Dow jumped more than 420 points that day and, after a blow-off on Wednesday, added 263 points on Thursday. (Markets were closed on Friday.)

And it looks as if a bottom was reached on March 11, when the Fed announced it would lend up to $200 billion to banks and other financial institutions, taking back a variety of securities, including mortgage securities, as collateral. The Dow jumped 416 points in response.

Gains for financials and techs

JPMorgan's sweetened offer for Bear Stearns pushed many financial stocks higher, including Citigroup (C, news, msgs), up 3.4% to $23.27; Merrill Lynch (MER, news, msgs), up 3.3% to $48.38; and Washington Mutual (WM, news, msgs), up 3.4% to $12.10.

But several big technology stocks had very strong days. Google (GOOG, news, msgs), which has been clobbered this year, was up 6.2% to $460.56. Apple (AAPL, news, msgs) jumped 4.7% to $139.53, and Research In Motion (RIMM, news, msgs), maker of the BlackBerry, was up 6.6% to $111.83.

While stocks were moving higher, crude oil was down 98 cents a barrel to $100.86 in New York. Gold closed down $1.30 an ounce to $918.70. The U.S. dollar was higher against the euro and the yen. The U.S. Dollar Index rose to 73.33 from 73.23 on Thursday. The index is up about 2% in the last week.

Waddya know: Bear really is worth more than $2

That's what JPMorgan Chase finally conceded today when it announced it will pay $10 per share for Bear Stearns. And shares jumped on the news.

There continues to be a strong belief among many investors that the offer may be sweetened, Jon Najarian of optionmonster.com told CNBC this afternoon. Optionmonster tracks option trading.

"Investors have decided that the worst is now over with the buyout of Bear Stearns (which avoided filing for bankruptcy protection), and investors can once again buy stocks -- especially financials," said Paul Nolte, director of investments at Hinsdale Associates, to MarketWatch.com.

• Video: A new deal for Bear

The new deal, a huge increase from the original $2-per-share offer, allows JPMorgan to buy newly issued shares that will give it 39.5% of the stock and effective control.

JPMorgan CEO Jamie Dimon began discussing a higher offer after taking furious calls from Bear Stearns' biggest shareholders, including British investor Joe Lewis and former Bear CEO Jimmy Cayne, the New York Times reported. Apparently JPMorgan wanted to revisit guarantees that it cover Bear Stearns trades.

Dimon also reportedly urged Morgan Stanley (MS, news, msgs) CEO John Mack and Merrill Lynch's (MER, news, msgs) John Thain not to recruit Bear Stearns employees.

JPMorgan said it will now cover the first $1 billion of any losses associated with financing the takeover, and the Federal Reserve Bank of New York will fund the remaining $29 billion, down from $30 billion in the original plan, with a term of 10 years on the loan.

The New York Times first reported over the weekend that JPMorgan was negotiating a deal to boost its offer price for the troubled company. The Federal Reserve resisted the idea at first but later signed off on the deal.

Dimon "would be happier to pay $10 rather than $2 to keep his new employees happy," George Ball, head of brokerage firm Sanders Morris Harris, told Bloomberg News. "But it's hard for the Fed to swallow politically."

The Fed is "in a difficult position," said Punk, Ziegel analyst Dick Bove on CNBC this morning. The Fed is "defending the U.S. taxpayer; they're defending the banking system. They have a broader view than simply looking at what's happening at Bear Stearns."

The $10 offer, while much higher than the original offer, is still 67% lower than Bear's $30 closing price before the JPMorgan announcement, less than two weeks ago, and 93% lower than its peak price of $171.70 in January 2007. Bear Stearns hasn't traded near $2 since the JPMorgan offer. Its low on March 17, after the deal was announced, was $2.84.

"I think Bear Stearns is worth nothing. I think any price over nothing that's paid for Bear Stearns is too much," Bove said to CNBC.

Energy prices -- New York close

	Mon.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$100.86	$101.84	-$0.98	-0.96%	5.08%
Heating oil (per gallon)	$2.9631	$2.9772	-$0.0141	4.35%	11.84%
Natural gas (per million BTU)	$9.3290	$9.0650	$0.2640	-0.55%	24.67%
Unleaded gasoline (per gallon)	$2.6270	$2.6051	$0.0219	4.57%	5.47%

Continued: Existing home sales up; Sirius moves closer to deal with XM Satellite

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