NEW YORK (CNNfn) - U.S. equity indexes rallied on the last day of the third quarter, mustering up their strength to pull themselves free from the plunge of the previous week – one of Wall Street's worst weeks on record – and closing triumphantly higher.
The previous week marked the first full week of trading since the terrorist attacks on the United States earlier this month.
"Investors want good news. They've had as much bad economic news as they can stomach," Mike Murphy, head of equity trading, First Union Securities, told CNNfn's Street Sweep.
The Dow Jones industrial average closed up 166.14 on the day to 8,847.56, and up 7.4 percent on the week. The weekly rise is the best percentage increase since the week of August 3rd, 1984, when the average closed up 7.8 percent. Last week, the average had closed down 14.2 percent on the week.
The Nasdaq Composite index finished up 38.09 on the day to 1498.80, and up 5.3 percent on the week. Last week, the index had closed down 3.3 percent.
The Standard & Poor's 500 closed up 22.33 on the day to 1040.94, and up 7.8 percent on the week. Last week, the index closed down 1.9 percent.
Market breadth was solidly positive. On the New York Stock Exchange, winners beat losers by a nearly 3-to-1 margin as 1.61 billion shares traded. On the Nasdaq, advancers topped decliners by a nearly 2-to-1 margin as 2.02 billion shares changed hands.
Asian stocks finished higher, with Tokyo's Nikkei index gaining nearly 1 percent. European bourses finished higher for the fifth straight session.
Treasury prices were higher. The dollar was higher against both the yen and the euro.
However, the week's rise must be taken with a grain of salt. The gains on the week close out one of the worst quarters in years, reflecting economic weakness that far predates the terrorist attack on the United States, which closed markets for four days.
The Nasdaq Composite finished the quarter down 31 percent, the index's second-worst quarter ever, while the Dow industrials finished down 16 percent in the quarter, its worst quarter since the fourth quarter of 1987, when it closed down 25 percent, according to Ned Davis research.
Economic data lifts indexes
Stock investors took the release of a pair of better-than-expected data as an impetus to rally.
Semiconductor and networking stocks, as well as resilient blue chip names, were the big winners on the day.
The University of Michigan consumer sentiment index was revised lower for September, but still managed to surpass economists' expectations, while the Chicago Purchasing Management Association index of manufacturing activity showed a rise in September, when economists had expected a fall.
The day's numbers shone brighter than any negative corporate or brokerage commentary that might have otherwise dampened enthusiasm.
"Earnings warnings are backward looking; economic data are forward looking. People want to look forward," said David Beard, portfolio manger at Morgens Waterfall Vintiadis.
The economic data reflect periods before and after the Sept. 11 terrorist attack on the United States. The Michigan sentiment number is particularly key in that they are a measure of how confident consumers are about the economy.
While the number showed that consumers experienced a rise in confidence just after the attacks in what may be seen as a patriotic gesture, in the following week confidence dropped considerably, implying October and future readings could be notably lower.
"You can't really look at values, you can't really look at fundamentals; it's all about psychological reaction today," Peter Mancuso, NYSE Specialist at Performance Specialist Group, told CNNfn's Market Call.
Separately, the U.S. government said the economy grew a little faster in the second quarter than initially thought. The U.S. gross domestic product grew at a 0.3 percent annual rate, the Commerce Department said in its final revision of the number. Growth slightly edged both economists' estimates and the government's previous estimate.
Dow keeps building
As was the case with the previous day's rally, big blue chip names, often associated with the Dow, moved higher with or without company-specific news.
Dow component American Express (AXP: up $1.60 to $29.06, Research, Estimates) rose even after ABN Amro cut its 2002 earnings estimated on the company, saying it is particularly vulnerable to the travel slowdown.
Microsoft's (MSFT: up $1.21 to $51.17, Research, Estimates) third-quarter and full-year 2002 earnings estimates were cut by Merrill Lynch on the same day the software maker and the Justice Department were ordered by the new judge in their antitrust case into negotiations to settle the matter.
Other big Dow movers included financial services company J.P. Morgan (JPM: up $1.03 to $34.15, Research, Estimates), General Motors (GM: up $1.74 to $42.90, Research, Estimates), 3M (MMM: up $2.09 to $98.40, Research, Estimates), and home improvement retailer Home Depot (HD: up $1.47 to $38.37, Research, Estimates).
Elsewhere in the retail sector, UBS Warburg upgraded Staples (SPLS: up $1.79 to $13.35, Research, Estimates) to "strong buy" from "hold" with a $16-to-$18 price target.
Grocery retailer Safeway (SWY: up $1.22 to $39.72, Research, Estimates) reported a third-quarter profit of 60 cents a share, meeting expectations, and added that it would boost its stock buyback program.
Oil services companies such as Halliburton (HAL: up $1.65 to $22.55, Research, Estimates), Baker Hughes (BHI: up $1.70 to $28.95, Research, Estimates), and Noble Drilling (NE: up $1.85 to $24.00, Research, Estimates) rose on hopes that OPEC might cut its output.
Airline stocks were strong. Salomon Smith Barney raised its rating on American Airlines' parent AMR (AMR: up $1.24 to $19.14, Research, Estimates) one day after President Bush announced an initiative to federalize airport security.
US Airways (U: up $0.55 to $4.65, Research, Estimates), Continental (CAL: up $2.00 to $15.00, Research, Estimates), and Delta Air Lines (DAL: up $1.97 to $26.33, Research, Estimates) rose as well.
Northwest Airlines (NWAC: up $0.73 to $11.41, Research, Estimates) also made gains, even though the company may face a lawsuit from Utah officials after the airline kept three Middle Eastern men off a Salt Lake City-bound flight due to passenger protests.
Siebel Systems (SEBL: up $0.03 to $13.01, Research, Estimates) rose on some positive comments from Credit Suisse First Boston.
Fellow business software makers Oracle (ORCL: up $0.54 to $12.58, Research, Estimates) and i2 Technologies (ITWO: down $0.05 to $3.44, Research, Estimates) advanced amid overall strength in the tech sector that included such leaders such as Cisco Systems (CSCO: up $0.94 to $12.18, Research, Estimates), Sun Microsystems (SUNW: up $0.36 to $8.27, Research, Estimates), and JDS Uniphase (JDSU: up $0.29 to $6.32, Research, Estimates).
Genesis Microchip (GNSS: up $0.84 to $28.14, Research, Estimates), which deals in graphics and video applications, is buying Sage (SAGI: up $3.89 to $15.25, Research, Estimates), a maker of digital display processors, for about $241 million in stock, news that gave the semiconductor sector a push.
However, some tech names fared less well. SG Cowen lowered its 2001 and 2002 estimates on storage software company Veritas Software (VRTS: down $0.55 to $18.44, Research, Estimates) and business software company PeopleSoft (PSFT: up $0.08 to $18.04, Research, Estimates).
Audio and video products maker Sony (SNE: down $3.99 to $33.20, Research, Estimates) said its fiscal 2002 net profit will be even lower than expected due to depleted sales and some restructuring charges.
Electric utility company Calpine (CPN: up $3.06 to $22.81, Research, Estimates) said it is on track to meet previously forecast fiscal-year 2001 earnings per share estimates of between $2 and $2.05.
Dominion Resources (D: up $2.45 to $59.35, Research, Estimates), TXU (TXU: up $1.91 to $46.32, Research, Estimates), Mirant (MIR: up $2.30 to $21.90, Research, Estimates), and Dynegy (DYN: up $3.38 to $34.65, Research, Estimates) rose in tandem.
Travel and residential real estate company Cendant Corp. (CD: up $1.36 to $12.80, Research, Estimates) rose despite lowering its earnings outlook, bringing competitor Galileo (GLC: up $2.31 to $20.76, Research, Estimates) along for the ride.
Package-delivery company United Parcel Service (UPS: up $2.26 to $51.98, Research, Estimates) again cut its third-quarter earnings forecast, blaming a sharp drop in shipping activity, although investors didn't seem to mind, boosting the stock. 
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