NEW YORK (CNN/Money) - Wall St. hit its highest peak in more than two months Wednesday, as investors bet the long-elusive stock market bottom has been set and that economic recovery will boost corporate profits in 2002.
The Nasdaq composite index soared 4.27 percent and the Dow Jones industrial average surged 2.23 percent as tech investors spearheaded a broad rally that has been brewing for months but really caught fire Wednesday.
"There are a growing number of investors who believe the market has hit bottom," Hugh Johnson, chief investment officer at First Albany, told CNNfn. "Investors with cash are feeling pressure to get in. Good markets beget good markets."
The Nasdaq composite rose 83.74 to 2,046.84, the highest close since Aug. 3 and the biggest one-day point gain since Sept. 10.
The Dow Jones industrial average added 220.45 to 10,114.29, the highest close since Aug. 28 and the biggest one-day point gain since Sept. 24. The Standard & Poor's 500 was up 25.55 to 1,170.35.
Treasury prices were sharply lower, with the 10-year note yield rising to 4.90 percent from 4.65 percent late Tuesday.
"It was a reversal today (Wednesday)," David Briggs, head of equity trading at Federated Investors told CNNfn's Street Sweep. "There was a 'flight to hope,' with people selling bonds and jumping into stocks, rather than the usual 'flight to quality,'" in which investors dump volatile stocks for the supposedly safer haven of bonds.
In Asia, markets closed higher on tech gains, while in Europe, bourses rose after Russia agreed to cut its oil output by about 150,000 barrels per day. The news gave a boost to light crude oil futures, which rose 33 cents to $19.98 a barrel in New York.
The dollar gained against the euro and was flat versus the yen.
Market breadth was positive in very active trading. On the Nasdaq, winners beat losers by 2-to-1 as 2.73 billion shares traded. On the New York Stock Exchange, advancers beat decliners by a little less than 2-to-1 as almost 1.74 billion shares changed hands.
Techs lead the way
While Wednesday's rise was broad-based, the biggest gainers were in computer software and hardware, semiconductors and networking issues.
Oracle (ORCL: up $1.57 to $15.37, Research, Estimates) CEO Larry Ellison, speaking at the company's annual tech conference, said the software maker's business had stabilized and may see growth in 2002.
The company joined Intel (INTC: up $1.75 to $34.61, Research, Estimates) and Cisco (CSCO: up $1.02 to $21.54, Research, Estimates), who earlier in the week issued similarly reassuring forward-looking statements.
Although tech names such as Microsoft (MSFT: up $2.10 to $68.10, Research, Estimates) and Intel also trade on the Dow, the leadership of the Nasdaq is particularly significant, analysts say, because the volatile tech industry is what led markets down in the first place and it's what needed to lead markets back up.
On Tuesday, the Nasdaq closed above its 200-day moving average of 1,949.45 for the first time in 15 months. The 200-day moving average is the average price of the index for the most recent 200 days.
"Usually, rising above it means that momentum has picked up substantially, which is the case on Nasdaq. It also means that they're (stocks) overextended," Al Goldman, chief market strategist at A.G. Edwards, told CNN/Money.
Also adding to Wednesday's rally was positive news about the economy. The National Association of Purchasing Management's index of the services sector showed a rise to 51.3 in November from 40.6 in October, well above the consensus of economists surveyed by Briefing.com, who were looking for a reading of 43.
However, market commentators cautioned buyers to take the gains in stride and not get too ahead of themselves -- a fitting warning on the fifth anniversary of Federal Reserve Chairman Alan Greenspan's cautionary speech on "irrational exuberance."
Speaking before the American Enterprise Institute for Public Policy Research in Washington on Dec. 5, 1996, Greenspan asked: "How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions? And how do we factor that assessment into monetary policy?"
Boxes, chips, networks lead
Software, networking and semiconductor issues charged ahead, with most other sectors not too far behind.
Oracle's reassurance gave a boost to the networking sector.
In addition, Goldman Sachs made positive comments about Sun Microsystems (SUNW: up $0.83 to $14.57, Research, Estimates), the largest maker of Unix servers, which power Web sites and corporate networks.
Network equipment maker Cisco Systems (CSCO: up $1.02 to $21.54, Research, Estimates) got a boost after Credit Suisse First Boston upped its fiscal 2002 earnings estimates.
No. 1 chipmaker Intel (INTC: up $1.75 to $34.61, Research, Estimates) was active ahead of its mid-quarter update after the bell Thursday on positive comments from a UBS Warburg analyst Tuesday. Also on Tuesday, the brokerage firm gave a boost to the overall semiconductor sector.
Energy trader Enron (ENE: up $0.14 to $1.01, Research, Estimates) gained on reports that the company is in talks to form a joint venture of its energy trading business with J.P. Morgan Chase (JPM: up $1.80 to $39.02, Research, Estimates) and UBS Warburg.
But automaker Ford (F: down $0.95 to $16.79, Research, Estimates) warned of a loss of 50 cents per share in the fourth quarter, when analysts were expecting a loss of 14 cents a share.
In other corporate news, AOL Time Warner (AOL: up $1.08 to $35.83, Research, Estimates) CEO Gerald Levin will step down from his post at the media company, CNN/Money.com's parent, next May. Co-chief operating officer Richard Parsons will take over the post.
On the Dow, 26 out of 30 issues closed higher, with retailer Home Depot (HD: up $2.20 to $49.90, Research, Estimates), conglomerate 3M (MMM: up $2.43 to $118.86, Research, Estimates) and in particular, computer hardware maker IBM (IBM: up $4.76 to $121.40, Research, Estimates), the biggest gainers.
Afghan groups settle on interim government
But the stock surge arrived as global safety concerns still loom.
In the war against terrorism, disparate Afghan groups meeting in Bonn, Germany, have agreed on an interim government that would incorporate the country's ethnically diverse populations, even while military action in Afghanistan continues.
In the latest development, three American troops were killed and at least 20 others wounded when a U.S. bomb missed its target near Kandahar.
In the Middle East, a suicide bomber set off an explosion outside a luxury hotel in downtown Jerusalem, killing the bomber and wounding six others.
While the news seemed to fly under the radar in Wednesday's trade, the potential threat of international military action on markets can hardly be set aside. The market is an event-driven one, Seaport Securities trader Ted Weisberg told CNNfn, and one that has the potential to change direction on any big geo-political development. 
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