NEW YORK (CNN/Money) - Stocks closed sharply higher Wednesday, although off of their best levels of the day, on a profit affirmation from General Electric Co. and buying in chip and software issues, one session after major indexes hit multiyear lows.

The Dow Jones industrial average rose 158.69, or 2.07 percent, to close at 7,841.82; it had ventured into negative territory soon after the opening before recovering. The Nasdaq composite gained 40.12, or 3.39 percent, to close at 1,222.29. The Standard & Poor's 500 index added 20.37, or 2.49 percent, to close at 839.66.

"It's a breath of fresh air, the volume and otherwise today (Wednesday)," Patrick Murphy, managing director at Spear, Leeds & Kellogg Specialists told CNNfn's Street Sweep. "We saw some short-covering but also saw some large institutional buying. We saw a little retail buying but still not a rush of retail buying. We need to see more conviction before that happens."

On Tuesday, worries about war with Iraq, rising oil prices, and disappointing corporate results pushed the Dow industrials to its lowest level since October 1998, while much milder selling was nonetheless sufficient to push the Nasdaq to its lowest point since September 1996. Both indexes fell below their closing lows of July 23, previously seen by some as a short-term bottom.

But a bounce off the lows combined with reassurance on profits from companies such as diversified conglomerate General Electric, aerospace parts maker United Technologies, and communication chipmaker R.F. Micro Devices, to lift stocks in Wednesday's trade.

"It's a short-covering rally, short term, typical of a bear market," said Matt Ruane, head of listed trading at Gerard Klauer Mattison. "You have some positive news out of GE, RFMD (RF Micro Devices) and you have the Dow and Nasdaq moving off four- and six-year lows, but I think we may need to retest the (July 24 intraday) low of 7,500 on the Dow."

After the close of trade, home retailer Bed, Bath & Beyond (BBBY: Research, Estimates) said profit in the fiscal second-quarter rose 40 percent from the same period one year earlier, thanks to lower mortgage rates and increased customer interest in the home following the terrorist attacks of Sept. 11, 2001.

The company said it earned 25 cents a share, two cents better than expected and better than the 18 cents earned a year earlier. Shares of the stock gained 70 cents to $34.40 in after-hours trade.

Thursday brings economic reports on new home sales, durable goods orders and weekly unemployment claims.

"We've got some decent data points to work through over the rest of the week. The new home sales, initial jobless claims are particularly important and Friday we have Michigan sentiment," said Bryan Piskorowski, market analyst at Prudential Financial. "But it's been the case of late that if the news is good, nothing happens and if the news is bad, we sell, so we'll have to see how these reports play out."

General Electric (GE: up $1.10 to $27.00, Research, Estimates), a Dow component, said Wednesday that its earnings and revenue for the third quarter are on track. The company said in July that it expected third-quarter revenue to rise 8-to-10 percent and earnings to rise 20-to-25 percent. Analysts on average expect the company to earn 41 cents, up 24 percent from the 33 cents earned a year ago, according to research firm First Call.

Dow component United Technologies (UTX: up $1.66 to $57.64, Research, Estimates), the maker of building systems and aerospace products, affirmed its 2002 earnings per share outlook and cash flow late Tuesday. The company expects to earn $4.40 per share, a penny above analysts' estimates, and said its available cash flow is $2 billion.

Paper maker and Dow component International Paper (IP: up $1.39 to $33.33, Research, Estimates), which was hit hard Tuesday on a warning from sector mate Weyerhaeuser (WY: up $1.04 to $44.83, Research, Estimates), said after the bell Tuesday that it sees third-quarter earnings per share coming in line with current estimates of 32 cents.

"GE, UTX and IP help the Dow [in the] short term, but these companies aren't raising estimates," Prudential's Piskorowski said. "They're not saying that the fourth quarter is going to show growth."

IBM (IBM: up $3.26 to $63.01, Research, Estimates) recovered from Tuesday's selloff, in which the computer hardware maker was dragged down amid brokerage concerns about rival Electronic Data Systems (EDS: up $0.47 to $12.15, Research, Estimates). On Wednesday, SoundView Technology said it would be a buyer of the stock at this level, reaffirmed its earnings-per-share targets for the third quarter and raised its revenue target by 1 percent.

Tobacco products maker Philip Morris (MO: down $1.23 to $41.48, Research, Estimates) countered the good tidings on the Dow after Morgan Stanley cut its profit outlook amid a broadly negative note on the sector. The firm lowered its industry view to "in-line" from "attractive," saying that industry fundamentals lead it to believe that there is further downside earnings per share risk, although it still is bullish on the sector in the long term.

Some tech companies also gave some positive guidance.

The chief financial officer of Veritas Software (VRTS: up $2.37 to $16.09, Research, Estimates), a maker of storage management software, said Tuesday that it's on track to meet its previously issued third-quarter forecasts. The company expects to report a per share profit of between 11 cents and 13 cents, when analysts on average are looking for a profit of 13 cents. A year earlier, the company earned 12 cents per share.

Communication chipmaker RF Micro Devices (RFMD: up $0.15 to $6.23, Research, Estimates) raised its fiscal second-quarter earnings-per-share and revenue estimates, citing a more diversified customer and product base and better visibility in the next quarter.

Programmable chipmaker Xilinx (XLNX: up $2.15 to $16.44, Research, Estimates) rose following a positive note out of Pacific Crest Securities in which the firm said it believes the company will make its September-quarter numbers. The firm noted that the CEO of Xilinx said at a Banc of America conference on Tuesday that the company's September quarter business is looking better than its June quarter.

The double whammy gave a lift to other chip companies, such as Intel (INTC: up $0.86 to $15.20, Research, Estimates) and KLA-Tencor (KLAC: up $2.05 to $30.01, Research, Estimates), pushing the Philadelphia Semiconductor Index, or the Soxx, up almost 6 percent.

On the down side, Goldman Sachs cut its 2002 and 2003 earnings-per-share estimates on e-business software maker Siebel Systems (SEBL: up $0.25 to $6.93, Research, Estimates), as its information technology spending surveys have shown more weakness in spending and only slim growth for 2003.

Micron Technology (MU: up $0.44 to $13.39, Research, Estimates), the No. 2 maker of computer memory chips, reported a wide fiscal fourth-quarter net loss late Tuesday as personal computer sales stayed weak and prices for its chips continued to slide.

In the day's economic news, the National Association of Realtors said existing home sales in August fell 1.7 percent to a 5.28 million unit annual rate. Analysts expected a 5.40 million unit rate.

The strength in stocks reversed the previous session's Treasury rally, sending the yield up to 3.75 percent as bond prices fell. Bond yields and prices move in opposite directions. The dollar was a little higher versus the euro but lower versus the yen.

Light oil futures fell 13 cents to $30.64 a barrel, retreating from their recent runup on war talk and concerns about the impact of Tropical Storm Isidore on Gulf of Mexico oil production. Gold prices fell.

Market breadth was positive. On the New York Stock Exchange, winners beat losers 11-to-5 as 1.64 billion shares traded. On the Nasdaq, advancers beat losers by more than 3-to-2 as 1.66 billion shares changed hands.