Stocks finish higher, but will rally hold?

By Charley Blaine and Elizabeth Strott

Stocks put in a rally today that left investors wondering if the gains might be short-lived.

The Dow Jones industrials finished the day up about 55 points, or 0.4%, to 12,582, and the Standard & Poor's 500 Index added 6 points, or 0.5% to 1,361. The Nasdaq Composite Index jumped about 30 points, or 1.3% to 2,352, largely on gains for semiconductors.

The rally had been set off by Wal-Mart Stores (WMT, news, msgs) and DuPont (DD, news, msgs), both of which raised guidance for first-quarter earnings, and by gains for semiconductors after an analyst upgrade for the group. Intel (INTC, news, msgs) was the best performer of the 30 Dow stocks, up 3.1% to $22.08.

Wal-Mart finished the day up 1% to $54.66, and DuPont was up 1.2% to $49.64.

Some traders felt uneasy because of the market's behavior during the day. Three times the Dow was up more than 100 points, but each surge higher was knocked down by sellers.

And many of the gains, particularly in retailing stocks, were said to be short-covering -- short-sellers who had sold borrowed shares in hopes they'd fall in price were buying the shares back to lock in profits.

Semiconductors had fallen more than 30% from last summer; retailers are down more than 26% from peaks reach in June 2007.

Retailers were higher today despite reporting mostly weak sales for March. But some of the buying appeared to be in hopes that tax rebates coming in May would boost sales and that the economy overall would start to show signs of recovery by the fall. The Standard & Poor's Retail Index ($RLX.X) was up 1.8% to 395.

In addition, financial stocks were mostly lower today. That's a big concern because about 17% of the market capitalization of the S&P 500 Index is financial stocks, a group that has drifted 4.4% lower since the market's big rally on April 1.

The market got some extra lift today from two major players:

• Goldman Sachs (GS, news, msgs) CEO Lloyd Blankfein told shareholders that markets are probably in the late stages of the global credit crisis that began last summer. "We're closer to the end than we are to the beginning," he said at the company's annual meeting in New York. Goldman Sachs finished the day down 2.1% to $170.55.

• Federal Reserve Chairman Ben Bernanke said the financial system was experiencing its worst stresses since the 1930s, but he told an audience in Richmond, Va., that the system was strong enough to withstand the pressures.

Crude oil in New York, meanwhile, was down 76 cents a barrel to $110.11 today after closing at a record high on Wednesday. Crude had hit an intraday record $112.21 a barrel as well on Wednesday, breaking the previous record of $111.80, set on March 17.

Friday brings first-quarter earnings from General Electric (GE, news, msgs), and the first-quarter earnings season kicks into a higher gear next week.

Intel, JPMorgan Chase (JPM, news, msgs), Coca-Cola (KO, news, msgs), Google (GOOG, news, msgs), Merrill Lynch (MER, news, msgs) and eBay (EBAY, news, msgs) all report next week.

It's still a tough economy ahead

The weakening U.S. economy has further to fall, a majority of economists surveyed by The Wall Street Journal said.

By a 3-to-1 margin, respondents in the paper's latest survey, released late today, said that the economy is in a recession. Almost three quarters said the economy hasn't yet hit bottom.

The survey was the first since the Federal Reserve's intervention to save Bear Stearns (BSC, news, msgs) from bankruptcy.

The vast majority of economists -- 80% of the 46 who answered the question -- approved of the Fed's handling of the Bear situation.

That didn't translate, however, into high marks for Fed Chairman Ben Bernanke or Treasury Secretary Henry Paulson, who also was closely involved in the deal. The Fed boss' grade rose slightly to 78 out of 100 from a 75 in February, the last time the question was asked, but is still far below 92 he scored in September. Paulson's grade dropped slightly to 73 from 74 in February.

"Bernanke has been too slow," said David Resler of Nomura Securities.

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$110.11	$110.87	-$0.76	8.40%	14.72%
Heating oil (per gallon)	$3.1940	$3.2345	-$0.0405	4.75%	20.56%
Natural gas (per million BTU)	$10.0980	$10.0560	$0.0420	-0.03%	34.95%
Unleaded gasoline (per gallon)	$2.7921	$2.7742	$0.0179	6.72%	12.10%

Genentech rises despite Avastin disappointment

After the close, the biotech giant Genentech (DNA, news, msgs) reported higher first-quarter profit on increased demand for its cancer drugs. Yet its shares initially fell in after-hours trading because Avastin, Genentech's most closely watched product and a key barometer of the company's fortunes, had U.S. sales of $600 million for the quarter.

While that was up 13% from a year ago, it was down slightly from the previous quarter. And it was some $24 million shy of Wall Street expectations, despite a recent approval for breast cancer in addition to colon and lung cancer.

Genentech earned $790 million, or 74 cents a share, up from $706 million, or 66 cents a share, a year ago. Excluding one-time items, Genentech earned 84 cents per share, topping the consensus analyst estimate by 2 cents, Reuters said.

The Avastin number pushed the shares down 2.5% immediately after the report came out. Buyers, however, pushed the stock up to $78.13, a gain of 0.2% from the regular close of $78.

Wal-Mart raises its forecast

Things weren't too bad for Wal-Mart Stores. Its March sales gain was at the low end of guidance, but it said that an early Easter hurt sales.

Analysts had been expecting a 1% increase in sales last month.

Wal-Mart also boosted its first-quarter earnings guidance, explaining that costs are well-contained. Wal-Mart expects earnings between 74 and 76 cents per share, up from a previous forecast of 70 to 74 cents per share. Analysts had pegged Wal-Mart to earn 72 cents per share.

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Wal-Mart said April sales at stores open at least one year would rise between 1% and 3%.

Yahoo, Microsoft back in the ring

Yahoo (YHOO, news, msgs) isn't going down without a fight.

The Internet company is still talking to Time Warner's (TWX, news, msgs) AOL about joining Internet operations in an effort to prevent a possible takeover of Yahoo by Microsoft (MSFT, news, msgs), The Wall Street Journal reported late Wednesday.

The terms of the deal, if it ever happens: Time Warner would make a cash investment in Yahoo, merge AOL into Yahoo and receive a 20% stake in a combined AOL-Yahoo company, the paper reported.

Yahoo shares rose nearly 3% to $28.59 on the day; Microsoft shares added 0.8% to $29.11.

The Journal's report comes just days after Microsoft gave Yahoo a three-week deadline to accept Microsoft's $31-per-share offer. (Microsoft is the publisher of MSN Money.)

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Meanwhile, Yahoo late Wednesday said it will test rival Google's (GOOG, news, msgs) Web search advertising on its site. Yahoo said the test of Google's AdSense service will last up to two weeks and will involve no more than 3% of its search queries.

Microsoft isn't waiting around, either. The New York Times reported that Microsoft is talking with News Corp. (NWS, news, msgs) about joining forces in a takeover of Yahoo. A combined effort could allow Microsoft to boost its offer price for Yahoo, the report said.

There was deep skepticism that Yahoo's moves will be enough to fight off Microsoft's offer. There was speculation that the talks with AOL were really meant to induce Microsoft to raise its bid for the Internet search company.

Chips jump on an upgrade

Bank of America this morning upgraded the chip sector to "overweight" from "neutral." Analyst Sumit Dhanda said that January worries about excessive inventories are now built into analysts' expectations for the sector.

Chips have been battered badly since last summer. The Philadelphia Semiconductor Index ($SOX.X) fell about 40% between a high on July 17 and its low on March 17. The index is up 11.4% since March 17.

Dhanda upgraded Intel to "buy" from "neutral," citing its better-looking profit margins for the current quarter. Dhanda also boosted Analog Devices (ADI, news, msgs) and Semtech (SMTC, news, msgs) to "buy" from "neutral."

Analog Devices shares climbed 5.1% to $31.56, and Semtec shares rose 5.3% to $16.06.

Costco gains reflect a return to basics

Costco Wholesale (COST, news, msgs) is another retailer that fared well in March.

The company said same-store-sales rose 7%. Analysts had expected a monthly increase of 5.9%.

Shares of Costco rose 0.7% to $66.52 on the day. One reason for Costco's gain was strong sales of gasoline.

Although Wal-Mart and Costco fared well in March, the overall picture for retailers was grim. March retail sales fell 0.5% from last year, the International Council of Shopping Centers said. It was the weakest March since 1995.

"Due to the Easter shift and weak economic conditions, the retail industry faced a difficult sales environment in March," said Michael Niemira, chief economist at the International Council of Shopping Centers in a statement today. "Looking forward to April, record high gasoline prices and consumers' worry about the economy will continue to curb discretionary spending power," Niemira said.

The Thomson Financial Same Store Sales Index is expected to fall 1.1%, excluding Wal-Mart, for March.

Bed Bath & Beyond gives weak forecast

Despite a couple of bright spots, rising prices for food and gasoline seem to be reining in consumer spending. Overall, the retail sales picture is expected to be grim.

Bed Bath & Beyond (BBBY, news, msgs) late Wednesday said fiscal 2008 earnings would be 10% to 20% lower than the $2.10 per share the company earned in fiscal 2007, "assuming no significant change in the macroeconomic environment."

The company expects to earn between 26 and 30 cents per share in its fiscal-first quarter, below the consensus estimate of 36 cents per share.

Bed Bath & Beyond also reported fiscal-fourth-quarter earnings of $172.9 million, or 66 cents per share, down 16% from the $205.8 million, or 72 cents per share, the home-furnishings retailer earned in the same quarter the year before. Sales fell 3.1% to $1.93 billion. Earnings were in line with analysts' estimates.

Shares rose 0.7% to $29.67.

Bed Bath & Beyond's forecast follows similar news from Alcoa (AA, news, msgs) and UPS (UPS, news, msgs), which earlier this week said the economic slowdown hurt their earnings in the first quarter.

Lower interest rates in England

Today the Bank of England lowered its key interest rate by a quarter of a percentage point to 5% -- its third rate cut since December.

"Credit conditions have tightened and the availability of credit appears to be worsening," the central bank said in a statement. It said that lower economic growth this year "should help to keep domestic inflationary pressures in check."

The BOE has been facing pressure as the U.K. economy has been slowing. Britain's biggest mortgage lender, Halifax, showed a 2.5% decline in its March housing price index, the worst monthly drop since 1992. And consumer sentiment is falling in the U.K., as well, hitting a low in March not seen in nearly four years.

Meanwhile, the European Central Bank this morning left interest rates steady at 4%. Most analysts had expected the decision.

"Inflation remains the overriding concern for now," said Laurent Bilke, an economist at Lehman Bros. and former forecaster at the ECB, to Bloomberg. "However, the spillover from the financial-market crisis will compel the ECB to cut later this year."

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

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.235%	1.275%	-0.040	-8.52%	-60.67%
5-year Treasury note yield	2.659%	2.582%	0.077	4.89%	-23.04%
10-year Treasury note yield	3.532%	3.466%	0.066	1.90%	-12.47%
30-year Treasury bond yield	4.342%	4.306%	0.036	-0.07%	-2.62%
Currencies
U.S. Dollar Index	72.420	72.120	0.300	0.35%	-5.57%
British pound in dollars	$1.9732	$1.9763	-0.0031	-0.53%	-0.81%
Dollar in British pounds	£0.5068	£0.5060	0.0008	0.54%	0.82%
Euro in dollars	1.5751	1.5838	-0.0087	0.00%	7.77%
Dollar in euros	€ 0.6349	€ 0.6314	0.0035	0.00%	-7.21%
Dollar in yen	101.86	101.72	0.14	2.05%	-8.93%
Canadian dollar in U.S. dollars	$0.983	$0.982	$0.0011	0.55%	-0.99%
U.S. dollar in Canadian dollars	$1.018	$1.018	-$0.0003	-0.55%	1.02%
Commodities
Gold	$931.80	$937.50	-$5.70	1.28%	11.19%
Copper	$3.9240	$4.0000	-$0.08	9.81%	29.04%
Silver	$18.0430	$18.2000	-$0.16	7.08%	20.93%
Crude oil (NYMEX) (per barrel)	$110.11	$110.87	-$0.76	8.12%	14.72%