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NEW YORK (CNNMoney.com) -- Stocks rallied Wednesday after a surprisingly strong January retail sales report helped counter worries that a weakening consumer could send the already struggling economy into a recession.

The Dow Jones industrial average (INDU) gained roughly 1.4%, while the broader Standard & Poor's 500 (SPX) index also added around 1.4%. Both the Dow and S&P 500 ended higher for the third session in a row.

The Nasdaq composite (COMP) gained around 2.3%, ending higher for the third out of four sessions.

The Russell 2000 (RUT.X) small-cap index gained 2.3% as well.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson are due to testify before the Senate Banking Committee starting at 10:00 a.m. ET Wednesday. The December trade balance and the weekly jobless claims report are expected before the start of trading.

A surprisingly strong January retail sales report fired up the broad stock market Wednesday, soothing worries about a slowdown in consumer spending, which fuels about two-thirds of economic activity.

"Today we're getting a boost out of the retail sales number because everyone is concerned about whether the consumer is going to get through this housing crisis," said Dan Genter, president and CEO at RNC Genter Capital Management.

Genter said he is not convinced that one report means all is well for the consumer, but that regardless, it is a positive development that is worth watching.

Retail sales rose 0.3%, the Commerce Dept. reported, versus forecasts for a drop of 0.3%. Sales excluding autos rose 0.3%, versus forecasts for a rise of 0.2%. (Full story).

"It feels like people are still extremely bearish and maybe more so than they should be, so a good piece of economic news like the retail sales report is going to get a positive response," said John Forelli, portfolio manager at Independence Investments.

A separate report showed that December business inventories rose 0.6%, topping forecasts.

Also in the mix Wednesday: news that President Bush has signed the $170 billion economic stimulus bill passed by Congress last week.

On the corporate front, investors considered better-than-expected earnings from chipmaker Applied Materials and Dow component Coca-Cola.

Additionally, News Corp. (NWS, Fortune 500) is in talks with Yahoo (YHOO, Fortune 500) about combining MySpace and other News Corp.-owned online properties, according to reports published Wednesday afternoon. A potential deal would give News Corp. a stake in Yahoo and perhaps help the company fend off Microsoft (MSFT, Fortune 500)'s $44.6 billion unsolicited takeover offer. (Full story).

Has the market bottomed? Some Wall Street pros think the stock market may have bottomed back on Jan. 23rd, when the Dow hit a trading low of 11,644. Since then, stocks have rallied, slipped back down to within range of the lows and then bounced back. As of Wednesday afternoon, the Dow was more than 7% off that Jan. low.

Blue chips rallied Tuesday on news that Warren Buffett reached out to ailing bond insurers and that major lenders came up with a plan that they say will help homeowners avoid foreclosure. But a tech advance fizzled, with the Nasdaq ending near the unchanged line.

On Wednesday, the Nasdaq led the advance, with a variety of big tech stocks rising, including Dell (DELL, Fortune 500), Microsoft (MSFT, Fortune 500), Cisco (CSCO, Fortune 500) and Apple (AAPL, Fortune 500).

Earnings news. Applied Materials (AMAT, Fortune 500) reported lower quarterly sales and earnings that nonetheless topped forecasts in a report released late Tuesday. Shares gained 10% Wednesday.

Dow component Coca-Cola (KO, Fortune 500) reported higher quarterly sales and earnings Wednesday that topped estimates. Nonetheless, shares inched lower.

Exxon Mobil (XOM, Fortune 500) shares rose despite news that the Venezuelan president has announced the country is cutting off imports to the oil giant after Exxon won a court order to freeze state-owned assets.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by nearly 2 to 1 on volume of 1.41 billion shares. On the Nasdaq, advancers beat decliners by 7 to 3 on volume of 2.24 billion shares.

Fund managers are concerned. The latest Merrill Lynch global fund managers survey, released Wednesday, shows that professional asset allocators are more worried about recession than in the previous month. The money managers are also pouring more money into cash than in previous months and are the wariest they've been about stocks since the aftermath of the 9/11 terrorist attacks.

Other markets. Treasury prices fell, raising the yield on the benchmark 10-year note to 3.72% from 3.66% late Tuesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar gained versus the yen and was little changed versus the euro.

U.S. light crude oil for March delivery rose 49 cents to $93.27 a barrel on the New York Mercantile Exchange, gyrating after a weaker-than-expected weekly oil inventories report.

COMEX gold for April delivery fell 90 cents to $910.20 an ounce.