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Wall Street rallies as investors bet economy is sound

NEW YORK -- Wall Street soared yesterday, propelling the Standard & Poor's 500 index and Dow Jones industrials to record highs as bright spots among generally sluggish retail sales allowed investors to toss aside concerns about the health of the economy.

The rally, which gave the Dow its biggest one-day percentage gain in nearly four years, was perhaps surprising given that there was no extraordinary announcement or other catalyst often seen with such a huge gain, and that it came before most companies have disclosed their second-quarter earnings.

The rise also marked a sharp contrast to the start of the week, when stocks fell sharply amid concerns that some hedge funds could succumb to ill-placed bets on the housing sector.

But investors, heartened by signs of a happy and spending consumer, decided to put some money on the table. Though retail sales generally appeared to be crimped last month by higher gasoline prices and a tepid housing market, and the outlook for the coming months was difficult to ascertain, the overall reading wasn't as dour as some investors had expected.

Several reports beat Street expectations -- notably that of Wal-Mart Stores Inc., the world's largest retailer, which posted a better-than-expected 2.4 percent jump in sales at stores open at least a year.

"It's relief that things weren't as bad as people expected," said Bill Schultz, chief investment officer at McQueen, Ball & Associates, referring to the retailers' reports and the economy at large. "We're maybe getting slower growth but not the fall-of-the-cliff economic scenarios."

But, Schultz said, "I think it is, over the near term, a little bit overdone, certainly on a two-day basis," he added, referring to the rally.

Given the nearly 400-point swing the Dow has shown this week and the big gains yesterday, a profit-taking session today wouldn't come as a surprise.

The S&P 500 rose 28.94, or 1.91 percent, to 1,547.70, above its record close of 1,539.18, set June 4.

The Dow shot up 283.86, or 2.09 percent, to 13,861.73; its previous record close, which came June 4, was 13,676.32. Yesterday's jump was the biggest one-day percentage gain for the blue chip index since October 2003 and the biggest single-session point gain since October 2002. The Dow also reached a trading high of 13,869.94 and saw its 50th record close since the start of October.

The Nasdaq Composite index rose 49.94, or 1.88 percent, to 2,701.73; the rise marked the biggest one-day percentage increase since March. The last time the Nasdaq closed at such levels was in February 2001. Still, the index is nowhere near its closing record of 5,048.62, set in March 2000, when it was bloated by the late-1990s tech boom.

The mood on Wall Street appeared jubilant, despite renewed unease about Iraq. The Bush administration yesterday said the United States has made only mixed progress toward its goals for political, military, and economic reform in Iraq.

Yesterday's report from Wal-Mart, one of the 30 companies that make up the Dow, helped ease some investors' worries about the health of the consumer ahead of the Commerce Department's report today on retail sales.

Besides Wal-Mart, Intel Corp. helped push the Dow higher after a Banc of America Securities analyst said the company might turn in better-than-expected second-quarter sales. Intel jumped 5.8 percent.

Stocks' ascent, after at times indecisive trading in recent weeks, could also reflect so-called short covering. Investors who sell stocks short are betting the stock will fall; in cases where the stocks rise, such investors are often forced to move in and buy stocks to limit their losses.

Bonds fell yesterday, with the yield on the benchmark 10-year Treasury note rising to 5.13 percent from 5.09 percent late Wednesday. The dollar was generally lower against other major currencies, dropping to a fresh low versus the euro and a 26-year low against the British pound. Gold prices rose.

Yesterday's gains come after about a year of impressive growth in stocks. Since about the middle of last summer, when oil prices receded and the Federal Reserve stopped raising short-term interest rates, investors have looked to continued growth in corporate profits and merger activity in deciding to push stocks higher.

Wall Street got an additional boost after mining company Rio Tinto offered to buy Canadian aluminum producer Alcan for $38.1 billion. The offer topped a bid from Alcoa Inc. that Alcan's board rejected in May. Alcoa dropped its bid.