NEW YORK (CNN/Money) - A technology stock rally sent the major U.S. indexes surging for a second straight session Thursday after a series of analysts turned bullish on some of last year's hardest-hit stocks.
The Dow Jones industrial average rose to its highest levels in more than four months, as the new trading year got off to a solid start following two annual declines.
But technology stocks posted the best gains. After two trading sessions, the Nasdaq composite index stands 4.8 percent higher in 2002.
EMC (EMC: up $1.79 to $16.59, Research, Estimates), whose shares fell 88 percent last year, rallied after Salomon Smith Barney upgraded the data storage leader to "buy" from "outperform."
Credit Suisse First Boston made positive comments on networking stocks including Cisco Systems (CSCO: up $1.53 to $20.76, Research, Estimates) and Riverstone Networks (RSTN: up $2.46 to $18.83, Research, Estimates).
And J.P. Morgan Chase recommended investors buy Intel (INTC: up $2.52 to $35.52, Research, Estimates) ahead of its profit report later this month.
"All the signs say they (the analysts) may be right," Charles Payne, head analyst at Wall Street Strategies, told CNNfn's Market Call.
Payne also linked the gains to fears that not owning stocks could be costly during rallies like Wednesday's, when stocks surged late in the day.
"It sort of becomes self-fulfilling that the more it goes up, the more the fence sitters are going to probably feel the need to jump in," Payne said.
Thursday was not without bad news. A handful of companies warned that quarterly financial results will fall short. Weekly jobless claims saw an unexpectedly big jump a day before the release of December employment data.
Investors have reason to doubt the staying power of any rally. A year ago Thursday, the Nasdaq surged a record 14.17 percent before tumbling most of the year.
But the Nasdaq rose 65.02 points, or 3.3 percent, to 2,044.27, while the Dow industrials advanced 98.74, or 1 percent, to 10,172.14, for its best finish since Aug. 28. The Standard & Poor's 500 gained 10.60, or 0.9 percent, to 1,165.27.
More stocks rose than fell in active trading. On the New York Stock Exchange, rising stocks topped declining issues 2-to-1 as nearly 1.4 billion shares traded. Nasdaq winners beat losers 11-to-7 as nearly 2.2 billion shares changed hands.
In other markets, Treasury securities gained. The dollar rose against the euro and fell versus the yen.
Tech gains
Some analysts linked the market's two-day gain to the "January effect," when cash from year-end bonuses and last year's tax-related selling is put into the stock market.
Others say investors are encouraged by signs that the economy bottomed shortly after the September terrorist attacks.
"We are probably on the verge of an economic recovery," Stephen Leeb, of Leeb Capital Management, told CNNfn's Street Sweep.
Twenty-two of Nasdaq's 25 most actively traded stocks rose. And most of the NYSE's actively traded gainers were tech stocks, including Lucent Technologies (LU: up $0.35 to $6.93, Research, Estimates), Nortel Networks (NT: up $0.53 to $8.28, Research, Estimates), and Nokia (NOK: up $1.33 to $26.90, Research, Estimates).
The gains spread beyond technology. Retailer Pier 1 Imports (PIR: up $1.49 to $18.49, Research, Estimates) said it expects to earn as much as 46 cents per share in the latest quarter. That's above the 42 cents per share consensus estimate of analysts surveyed by First Call.
Walgreen's (WAG: up $1.33 to $34.41, Research, Estimates) fiscal first-quarter profit topped forecasts, with the drugstore chain earning 18 cents per share.
Pacific Healthcare Systems (PHSY: up $0.47 to $16.55, Research, Estimates) and Action Performance (ACTN: up $1.63 to $32.40, Research, Estimates), a motorsports collectibles maker, raised financial guidance.
Merrill Lynch upgraded Dow Chemical (DOW: up $1.25 to $35.44, Research, Estimates), saying the company is at the bottom of its profit cycle and will benefit as the economy recovers. The upgrade appeared to counter any worries from Dow's profit warning.
Nasdaq's biggest loser, Peregrine Systems (PRGN: down $5.24 to $9.27, Research, Estimates), wasn't as fortunate. The software maker said it would lose money in the latest quarter. Analysts expected a profit.
The losses continued for Kmart (KM: down $0.65 to $4.09, Research, Estimates) one day after Prudential Securities took the rare step of advising clients to sell shares of the discount retailer.
Labor market weakness?
The number of Americans filing first-time jobless claims rose by 36,000 to 447,000 during the week that included the Christmas holiday, the government said Thursday.
While the numbers were weaker than expected, the four-week moving average of new claims, which smoothes out weekly volatility, fell to 410,000 from 418,000.
A broader read on the labor market comes Friday, when December's unemployment rate is expected to rise to 5.8 percent from 5.7 percent in November, according to analysts surveyed by Briefing.com. But the pace of job losses is forecast to slow, with the number of non-farm jobs declining by 155,000, about half November's loss.
Thursday marked the one-year anniversary of the Federal Reserve's first interest rate cut of the 21st century. The surprise, half-percentage point move sparked the Nasdaq's record one-day gain during a year when the index ultimately fell more than 20 percent.
The Fed went on to cut interest rates 10 more times last year. And the moves may be paying off. Construction spending rose 0.8 percent in November, above expectations, the government said Thursday. A manufacturing survey compiled by the Institute of Supply Management rose to its highest levels in more than a year Wednesday. And last week, a closely watched consumer confidence index surged in December, a month of rising stock prices and the collapse of Afghanistan's Taliban.
In the day's other gainers, Dow component General Motors (GM: up $0.71 to $49.35, Research, Estimates) said its auto sales rose 6.8 percent in December. Also in the Dow, Disney (DIS: up $0.67 to $22.12, Research, Estimates) jumped more than 3 percent. Chairman Michael Eisner gave a bullish outlook for the media conglomerate in his annual letter to shareholders, even as the company continues to struggle with slower business in a down economy.
The Dow's biggest losers, Procter & Gamble (PG: down $0.77 to $79.23, Research, Estimates) and Merck (MRK: down $0.73 to $59.03, Research, Estimates), limited the blue chips' gains.
Still, the Dow, which fell 7 percent last year, is 1.5 percent higher in 2002. 
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