Stocks step-up day two

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NEW YORK (CNNMoney.com) -- Stocks advanced for a second session Thursday as investors continued to jump back into equities after a steep selloff.

The Dow Jones industrial average (INDU) added 0.9 percent. The broader Standard & Poor's 500 (SPX) index gained 1 percent and the Nasdaq composite (COMP) gained 1.9 percent.

All three indexes had rallied Wednesday in a late-session turnaround.

Upbeat earnings, more talk of a bond insurer bailout, details on the $150 billion fiscal stimulus plan and the aftermath of the Federal Reserve's emergency interest-rate cut on Tuesday all contributed to the positive tone. The positive developments overshadowed spiking oil prices and more bad news for the housing market.

"After several weeks of nothing but lightning and storms, the market was looking for any good news," said Dan Genter, president and CEO at RNC Genter Capital Management. "You finally had something from the Fed and news regarding possible assistance for the bond insurers."

Genter said that while these developments were positive, they don't change the fundamentals of the market. "I'd like to be able to say this advance represents a significant turnaround, but I just don't think it does."

That's partly because the bounce was fueled by short covering as much as anything else, traders said. Short covering refers to a process by which investors who have sold stocks short, to take advantage of a falling market, need to buy them back as the market starts to rise.

"This is the oversold bounce that people have been looking for and provided there's a lack of negative news, it can probably continue into next week," said Joseph Saluzzi, co-head of equity trading at Themis Trading.

But he said that market makers are not ready to see this as a sign that markets have turned the corner. "You have a lot of hopeful buyers on the sidelines looking for evidence that stocks have bottomed, but what has really changed in a day?," he said. "We still have the subprime mess to deal with."

Thursday's after-the-close earnings. Microsoft, Sun Microsystems and Amgen were among the companies reporting earnings results.

Microsoft (MSFT, Fortune 500) reported higher quarterly sales and earnings that topped estimates, sending shares 5 percent higher in extended-hours trading.

Sun Microsystems (JAVA, Fortune 500) also reported higher quarterly profit that beat estimates. Shares were little changed after the close.

Amgen (AMGN, Fortune 500) reported higher earnings and weaker sales in the fourth quarter, both above analysts' expectations. Shares gained 5 percent in extended-hours trading.

Dow components Caterpillar (CAT, Fortune 500) and Honeywell (HON, Fortune 500) are scheduled to report quarterly results before the close on Friday.

A rocky start. Stocks have had a miserable start to 2008, falling on fears that the credit and housing market crises will send the economy into a recession, if they haven't done so already.

The declines racked up this year are an extension of the weakness from the last quarter of 2007. During Wednesday's session, the Nasdaq fell briefly into bear-market territory, defined as down by more than 20 percent from cyclical highs. The Dow and S&P 500 had both fallen as much as 18 percent from their all-time highs hit in October.

That steep selloff set stocks up for a big bounce back that was triggered Wednesday by reports that New York regulators and banks are seeking a means of raising money for struggling bond insurers.

Stocks kept rallying Thursday even after the bond insurers were dealt further setbacks. The New York regulators said that a bailout plan wasn't imminent for the insurers. And ratings agency Fitch downgraded Security Capital Assurance's financial strength rating after the company said it had scrapped plans to raise $2 billion to maintain the rating.

Security Capital (SCA), MBIA (MBI) and Ambac Financial (ABK) all slumped.

Economic news. The session brought more bleak news on the housing market fallout. December existing home sales saw the biggest drop in 25 years. (Full story).

House leaders and Treasury Secretary Henry Paulson announced the details Thursday afternoon of the $150 billion fiscal stimulus plan to boost economic growth. (Full story).

However, Wall Streeters have been skeptical as to how much impact this one-time effort will have on the economy.

In other economic news, weekly jobless claims fell last week, with less Americans filing new claims for unemployment than had been expected.

Earnings news. But some of the corporate news was more positive.

Nokia (NOK) reported a 44 percent jump in net profit and said that it had reached its goal of 40 percent market share in handset sales. The company also said that while it expects continued growth in 2008, first-quarter growth would slow from the last quarter of 2007. Shares jumped 12.5 percent.

On late Wednesday Qualcomm (QCOM, Fortune 500), which makes chips for cell phones, reported strong fiscal first-quarter results and forecast second-quarter and full-year profit in line with forecasts. Shares jumped over 10 percent in active Nasdaq trade Thursday.

Symantec (SYMC) said it expects fiscal fourth-quarter and full-year profit to top forecasts. The security software firm also reported higher third-quarter earnings. Shares jumped 11 percent in active Nasdaq trade.

Capital One Financial (COF, Fortune 500) said late Wednesday that its fourth-quarter profit dropped due to charges associated with its mortgage business shutdown, but earnings topped estimates. Shares gained 8 percent Thursday.

eBay (EBAY, Fortune 500) warned late Wednesday that first-quarter and 2008 results won't meet estimates. The online auctioneer posted fourth-quarter results that topped estimates, but investors focused on the warning, sending shares over 6 percent lower on Thursday.

Separately, eBay said that CEO Meg Whitman will step down in March, around the time of her 10-year anniversary with the firm, as had been expected.

AT&T (T, Fortune 500) reported higher quarterly profit that met Wall Street estimates, but investors took a 'sell the news' approach and sent shares of the Dow component lower.

Market breadth was positive. On the New York Stock Exchange, winners topped losers three to two on volume of 2.17 billion shares. On the Nasdaq, advancers beat decliners by more than four to three on volume of nearly 3 billion shares.

Other markets. European markets rallied. Most Asian markets ended higher, with the exception of Hong Kong.

Treasury prices fell, raising the yield on the 10-year note to 3.71 percent from 3.60 percent late Wednesday. Bond prices and yields move in opposite directions.

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

U.S. light crude oil for March delivery rose $2.42 to settle at $89.41 a barrel on the New York Mercantile Exchange after the government reported a stronger-than-expected rise in crude supplies last week.

COMEX gold rallied $22.70 to settle at $905.80 an ounce.