U.S. Stock Indexes Extend Rally As Oil Drops

NEW YORK (MarketWatch) -- U.S. stocks climbed solidly higher Monday, adding to last week's gains as investors cheered crude's fall to under $114 a barrel.

"The averages are tracking tick-for-tick the price of oil," said Peter Cardillo, chief market economist at Avalon Partners. "With the exception of Fannie Mae and Freddie Mac, even the financials are enjoying a nice day today."

After falling more than 50 points early on, the Dow Jones Industrial Average was up 118.46 points at 11,852.78 in mid-afternoon trading, its highest intraday level since late June.

Of the Dow's 30 components, 23 posted gains, led by General Motors Corp. , up 10%, and Home Depot Inc. , up 8.2%.

Telecommunications firms also were among those gaining on the Dow, with Verizon Communications Inc. and AT&T Inc. both up nearly 3%. The gains came in the wake of a labor agreement between Verizon and two unions representing 65,000 workers. .

Alcoa Inc. led the decliners among the blue chips, with shares of the company recently off 2.4%.

The S&P 500 Index also shed early losses to rise 16.43 points to 1,312.75, with consumer-discretionary and financial shares leading the gains, the former up 5.2% and the latter climbing 3.5%.

While financial shares at large trended higher, Fannie Mae and Freddie Mac proved exceptions, with shares of the government-sponsored entities each down more than 2%.

Energy and materials were the hardest hit among the S&P's 10 industry groups, with energy off 2.3% and materials down 0.7%.

The Nasdaq Composite Index gained 42.34 points to 2,456.44, with Amazon.com Inc. and chip manufacturers keeping the tech sector in the green.

Volume on the New York Stock Exchange totaled 525 million shares, and advancing stocks outpaced those declining nearly 2 to 1. On the Nasdaq, 387 million shares changed hands, and advancers outpaced decliners, also by a 2-to-1 ratio.

U.S. stocks had ended sharply higher Friday as strength in the dollar triggered losses for commodities, notably oil. Transport and housing stocks led the advance, in which the Dow industrials rallied 302 points, the S&P 500 rose 30 points and the Nasdaq added 58 points.

"We believe the markets may have a few more weeks left on this current rally before financial-related issues take center stage again," said Paul Nolte, director of investments at Hinsdale Associates.

"The markets showed how interrelated they all are on Friday," said Marc Pado, a strategist at Cantor Fitzgerald. "I dare to say that what roiled the market on Thursday was equally responsible for rallying the market the next day."

Crude plummets

Crude futures reversed course from an early rise on thinking a global slowdown would curb demand, with the contract for September delivery recently sliding $2.15 to $113.05 a barrel after climbing as high as $116 a barrel earlier in the session. .

Gold futures also fell sharply, with gold for December delivery dropping $34.20 to $830.60 an ounce on the New York Mercantile Exchange. .

The focus on easing commodity prices fueled a drop in Treasury prices, with the yield on the 10-year note rising 5 basis points to 3.98%.

The dollar held the line of last week's healthy gains, with analysts saying the greenback may rise further if the price of crude holds below $120 a barrel. The dollar index, which measures the U.S. currency against major rivals, climbed to 76.18. .

UPS in news

On the M&A front, two prospective deals held the spotlight.

Waste Management Inc. hiked its unsolicited offer for Republic Services to $6.73 billion, or $37 a share.

A United Parcel Service Inc. executive said that a proposed bid for Dutch rival TNT NV would devalue the U.S. package-delivery giant, according to Reuters.

In addition, Bloomberg News reported that GATX Corp. has offered General Electric Co. more than $3 billion for its railservices unit.

Berkshire Hathaway Inc.
late Friday said its second-quarter net income dropped 8% on sharply lower underwriting earnings, but shares of the company owned by billionaire Warren Buffett traded more than 1% higher in mid-afternoon action.

Overseas, the Nikkei 225 ended 2% higher in Tokyo.

The pan-European Dow Jones Stoxx 600 index gained 1% to 292.10.

By Kate Gibson