Dow jumps 185 as banks surge

Updated at 8:30 p.m. ET.

A big rally by financial shares today set off the best day for stocks in six weeks.

The gains in financial stocks were fueled by a prominent Wall Street analyst who issued a buy recommendation on Goldman Sachs (GS) and even suggested that troubled banking giant Bank of America (BAC) was worth a look.

Meredith Whitney, who gained fame for her 2007 prediction that Citigroup (C) faced huge losses, issued her first buy rating on a financial stock since early 2008 when she rated Goldman Sachs a buy.

The investment banking giant is expected to report a huge profit before the market opens on Tuesday.

The Dow Jones industrials ($INDU) closed up 185 points, or 2.3%, to 8,332. The Standard & Poor's 500 Index ($INX) rose 22 points, or 2.5%, to 901, and the Nasdaq Composite Index ($COMPX) was up 37 points, or 2.1%, to 1,793.

Tuesday's market will be affected by the Goldman earnings report as well as a government report on retail sales.

In addition, Dow components Johnson & Johnson (JNJ) and Intel (INTC) will report second-quarter results. 

Today's rally produced the biggest gains for the major indexes since June 1, when the Dow jumped 221 points. And the S&P 500 finished about 2 points below its 2008 close. And it came after the Dow and the S&P fell for four consecutive weeks.

The rally put the Dow at its highest level since July 1, when it was at 8,504.

But it came with two big caveats:

• Trading volume was very light, just 1.2 million shares on the New York Stock Exchange, about 25% of normal, and 1.92 billion shares on Nasdaq, 13% below normal. That suggests a rally with little conviction.
• The rally isn't a signal that the economy has suddenly rebounded. Railroad shipments, which usually turn up ahead of a rebound, are still down. Retail sales are weak, and most housing markets are a mess.

Thanks to Whitney's call, Goldman was up 5.3% to $149.44 this afternoon. Bank of America, meanwhile, was up 9.3% to $12.99 and was the leader among the 30 Dow stocks.

Financial stocks -- with one exception -- were up sharply. And the 20 top performers in the S&P 500 today were financial stocks.

American International Group (AIG) the leader, was up 24.1% to $14.57.

Morgan Stanley (MS) shares gained 7.6% to $27.91. The S&P Banking Index ($BIX) was up 7.3% to 108.33.

The exception was small-business lender CIT Group (CIT), which is struggling with a serious cash crunch. Shares were down 11.8% to $1.35.

The Wall Street Journal said late today that government officials were in advanced talks about aiding CIT.

The officials are worried about unforeseen consequences that a collapse of CIT could trigger. The 101-year-old company is a lender to nearly a million companies.

• Read more on Goldman's upgrade 

All 30 Dow stocks were ahead on the day. The weakest of the group was  Hewlett-Packard (HPQ), up 0.2% to $37.30.

Meanwhile, the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, was up 29 points, or 2%, to 1,448. Apple (AAPL), up 2.8% to $142.34, and Microsoft (MSFT), up 3.8% to $23.23, powered the index. (Microsoft is the publisher of MSN Money.)

Microsoft said that it will release three versions of its dominant Office software that users can access over the Web, catching up with products that rival Google (GOOG) launched three years ago. Google was up 2.4% to $424.30.

Netflix (NFLX), the online renter of videos and movies, was up 5.3% on takeover speculation. Amazon.com (AMZN), the purported suitor, was up 5% to $81.47.

Meanwhile, 474 S&P 500 stocks were higher, along with 89 Nasdaq-100 stocks.

The Nasdaq-100 might have been up even stronger if one company -- Expeditors International of Washington (EXPD) -- hadn't surprised investors with a warning late Friday that second-quarter earnings would be lower than expected.

The shares were down 5.6% to $29.88; they had been down as much as 10% at the open. Still, they were the second-worst performer in the S&P 500.

• Best Buy rallies on upgrade

They were also the worst performer among stocks in the Nasdaq-100 and in the Dow Jones Transportation Average ($DJT). But the the transports were up 33 points to 3,145.

Oil finds some support

Yes, crude oil was lower today, falling 20 cents to $59.69 a barrel in New York. But that was a rebound from $58.32, its low for the day.

Oil's decline has helped push gasoline prices down over the past two weeks.

• Prices at the pump fall

"Tick, tick, tick . . . time is running out for the oil bulls," oil analyst Stephen Schork wrote in his daily newsletter, The Schork Report, this morning.

• Fed chief to outline plan next week

Another expert said oil could fall even further in coming months.

"The market still is concerned about the economy overall," Phil Flynn, vice president at futures trading and research firm PFG BEST Research, told MarketWatch. "There is a sense right now that with the economic outlook being what it is, the demand prospects are still very poor."

The International Energy Agency on Friday reasserted its forecast that global oil demand for 2009 will fall 2.9%, or 2.5 million barrels a day, from a year ago.

Nonetheless, energy stocks were generally higher. Exxon Mobil (XOM) was up 0.9% to $65.70. Chevron (CVX) added 1.7% to $62.44. Schlumberger (SLB) was up 1% to $50.99, and Tidewater (TDW), which provides supply boats for the offshore industry, added 1.7% to $43.65.

• Second-quarter earnings parade this week

After today's close, railroad operator CSX (CSX) reported a 20% profit drop as shipment dropped, but shares were up 1% after hours to $32.86. They'd closed in regular trading at $32.54.

Meanwhile, shares of chip-equipment maker Novellus Systems (NVLS) were down 1.9% to $18.30 after hours. The company reported a wider second-quarter loss due to lower sales and special charges for work force reductions.

• What Dell and CSX told us after the close

Elizabeth Strott contributed to this report.