Big Blue makes Wall Street's day

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NEW YORK (CNNMoney.com) -- Stocks rallied Monday as strong earnings from IBM boosted technology stocks and anticipation of a Fed interest rate cut encouraged investors to buy equities.

The Dow Jones industrial average (INDU) added 1.4 percent. The broader S&P 500 (INX) index rose 1.1 percent and the Nasdaq (COMPX) composite climbed more than 1.5 percent.

Major indexes opened higher Monday after being pummeled by recession fears in Friday's session. Technology stocks led gainers, though a surge in precious metals and other commodities also added some upside.

Investors are bracing for more bad news from the financial services sector this week. Citigroup is expected to write down more subprime-related debt when it reports earnings Tuesday. Merrill Lynch is also expected to deliver disappointing results when it posts earnings Thursday.

Investors will look for signs of consumer confidence Thursday when the Department of Commerce releases a report on consumer spending for December. Also out Thursday, the Labor Department's Producer Price Index, which may shed light on inflation during December.

Gold for February delivery reached an all time intra-day high of $915.90 before settling at $903.80 an ounce in New York Monday as the dollar sank against the euro and yen. Crude prices and Treasurys also closed higher.

Technology blue-chip IBM said early Monday that earnings for the fourth quarter will be higher than expected based largely on overseas sales. The company said it expects fourth-quarter earnings of $2.80 a share, compared to analysts' expectations of $2.60 a share.

Other technology companies, including Apple (AAPL, Fortune 500), Intel (INTC, Fortune 500) and Dell (DELL, Fortune 500) traded higher on the IBM news.

Wall Street's reaction to IBM's earnings was strong because the company is seen as a bellwether of future economic trends.

"IBM is a company whose financials are nearly synonymous with the overall economy," said Hugh Johnson, chief strategist at ThomasLloyd Global Asset Management.

Moreover, Monday's session mirrors the current economic climate, according to Johnson.

"Today was a kind of microcosm, we saw weakness in the financials and consumer discretionaries, coupled with considerable strength in the technology sector and commodities," he said.

However, Johnson cautioned that Monday's rally does not necessarily signal the end of Wall Street's current problems.

"One day doesn't make a trend," he added.

With the credit crisis plaguing the financial services industry and the deteriorating housing market pinching consumers, talk of an economic recession has been the dominant theme on Wall Street in recent weeks.

The dismal economic outlook has many investors betting that the Federal Reserve will cut rates by at least a half-percentage point on Jan. 30 at the end of its scheduled two-day meeting.

Investment house Credit Suisse issued an analyst note Monday upgrading the U.S. equity market to overweight on the likelihood of additional accommodation by the Federal Reserve. At the same time, the report downgraded European stocks based on the European Central Bank's reluctance to cut interest rates.

Commodities were active in Monday's session. Gold futures reached an all time intra-day high of $915.90 before settling at $903.80 an ounce in New York.

The precious metal's rally lifted shares of gold producer Yamana Gold (AUY) by nearly 4 percent.

In corporate news, department store operator Sears Holdings (SHLD, Fortune 500) warned Monday that it expects fourth-quarter earnings to be weaker than expected due to slow same-store sales growth. Shares of the company finished down more than 5 percent in afternoon trading.

After the close, biotech company Genentech (DNA) reported earnings that beat Wall Street estimates but met expectations when it came to revenue. Shares of the company fell in after hours trading.

Investors are bracing for more bad news from the financial sector this week with a number of big banks looking down the barrel of some staggering writedowns.

Citigroup (C, Fortune 500), the world's largest bank, is expected to to take a giant writedown when it reports its fourth-quarter results Tuesday. Separately, a report in The Wall Street Journal Monday said the Chinese government is voicing opposition to Citi's plan to sell a $2 billion stake to China Development Bank.

Merrill Lynch (MER, Fortune 500) is also expected to report a writedown when it releases earnings Thursday. Making matters worse for the Wall Street fixture, the Journal reported Monday that Merrill is facing a Securities and Exchange Commission investigation over improper trading by a handful of current and former employees.

Other financial services companies reporting earnings this week: JP Morgan (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500) and Washington Mutual (WM, Fortune 500).

Market breadth was positive. On the Dow winners beat losers by roughly two to one on a volume of 1.39 million shares. On the Nasdaq, advancers beat decliners by about three to two on a volume of 2.16 billion shares.

Treasury prices rose, with the yield on the 10-year note falling to 3.78 percent, from 3.80 percent late Friday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar fell versus the yen and the euro.

U.S. light crude oil for February delivery rose $1.55 to $94.24 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery spiked $6.10 to $903.80 an ounce, an all-time record high, on the weakening U.S. dollar.