Bargain Buying Boosts Nasdaq

Recording artists Snopp Dogg and P. Diddy perform on stage at the Hartwall Areena, on March 9, 2007 in Helsinki, Finland. This concert marks the beginning of the European Tour. (Photo by Dave Hogan/Getty Images)
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Wall Street went bargain hunting Tuesday, picking up tech stocks made cheap by weeks of bloodletting. But analysts weren't sure if the rally was a sign the economy has turned a corner, or merely a symptom of long-term trouble.

"People are reading too much into the [market's ability] to shrug off bad news. When you come from such oversold conditions, like the ones we've seen in the Nasdaq, it takes away from that perception," Todd Gold, technical strategist at Gruntal & Co., told CBS MarketWatch, adding that a bounce was overdue.

According to closing numbers from MarketWatch, the Nasdaq ended the day up 61.51 at 2,204.43. The Dow rose 28.92 to close at 10,591.22, while the Standard & Poor's 500 hit 1,253.80, up 12.39.

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Hardware and chip stocks led the way on the Nasdaq, while financial and retail issues did well on the Dow.

Among Nasdaq top-tier names, gainers included recently beaten down issues like Web gear maker Cisco Systems Inc., network computer maker Sun Microsystems Inc. and software company Oracle Corp.

Chip makers Xilinx Inc., Varian Semiconductor Equipment Associates Inc. and TriQuint Semiconductor Inc. ratcheted down their sales estimates in the soft economy. But all three stocks shot higher as investors crossed their fingers that the worst was over for the battered sector.

The Dow was lifted by other technology components like computer maker Hewlett-Packard Co., IBM and Microsoft, as well as financials including J.P. Morgan, Chase and some retailing issues. But defensive stocks fell, including tobacco giant Philip Morris and pharmaceuticals companies Johnson & Johnson and Merck & Co.

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The day's gains added to a modest advance the market made Monday, when investors picked up beaten-down tech shares after big investment houses told clients it was time to scoop up U.S. equities.

Stocks continued to rise Tuesday despite bleak earnings outlooks, which some analysts say is a sign the market is ready for a longer-term rally. More bearish analysts, however, say the buying is temporary, a so-called bear market rally.

"I think that, at least for the Old Economy names, this (rally) could be for real. We're starting to get a lot of fundamental signs that maybe things are about to turn better," said James Meyer, director of research at Janney Montgomery Scott.

However, "the tech rally is a bit more suspicious," Meyer said, adding that it will take a while for computer and chip makers to work off excess inventories.

For now, Meyer said, techs like Intel are trading higher largely because stock prices seem cheap to investors. Intel rose even though the chip maker slashed prices on its processors by as much as 19 percent earlier this week. Intel cited an inventory pileup that came as demand slowed and the economy cooled.

Tech companies have inflated stock prices to work off, as well, said Ricky Harrington, a technical analyst for Wachovia Securities.

"The big picture is the fact that the market is still faced with high valuations…It is going to take a long time for this situation to unravel," Harrington said.

Although it's a positive sign when stocks fare better amid lowered expectations, analysts said investors should keep their optimism in check and not expect a tech surge to reoccur anytime soon.

Investors likely were cheered somewhat Tuesday by economic news released earlier. The government reported that Americans' productivity, a key measure of rising living standards, slowed to a 2.2 percent rate of growth in the fourth quarter as the economy weakened. The figure was slightly ahead of the 2.0 percent analysts were expecting.

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Investors are betting that the Federal Reserve will once again come to the rescue of the slowing economy with another interest rate cut at its next meeting March 20. The central bank has already slashed the cost of borrowing by one full percentage point in two moves in January.

The new productivity numbers could spur another round of cuts. But the figures could also be a warning sign to Chairman Alan Greenspan. While the latest statistics still show robust growth in worker output, a productivity fall-off can spark inflation when companies raise prices to pay for workers whose salary is growing but whose output is not.

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