Stocks charge higher

Investors encouraged by quarterly results, a potential financing deal for troubled lender CIT. Dow rallies; Nasdaq, S&P 500 gain more than 1%.

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By Catherine Clifford, staff writer

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NEW YORK ( -- Stocks rallied Monday, with the Dow adding more than 100 points and the S&P closing at an 8-month high, as investors signaled optimism about second-quarter financial reports.

Wall Street also got a charge from reports that small business lender CIT has secured private-sector financing to keep it out of bankruptcy. Investors were encouraged to see that the financial sector can take care of itself, without government bailout funds.

The Dow Jones industrial average (INDU) jumped 104 points, or 1.2%. Monday's rally pushed the blue-chip index into positive territory (in 2009) for the first time in more than 5 weeks.

The broader S&P 500 (SPX) index added 11 points, or 1.1%, to close at its highest level in more than 8 months.

The tech-heavy Nasdaq composite (COMP) added 23 points, or about 1.2%, to stretch to its highest level since early October, or about 9 months.

The major indexes are coming off a positive week. Last week was the Dow and S&P 500's first up week -- and the Nasdaq's second -- in the past five.

The major force on Wall Street is second-quarter earnings.

"We have a very heavy earnings calendar, light economic news calendar," said Fred Dickson, chief market strategist at D.A. Davidson & Company. "The name of the game is earnings."

Companies have beat analysts' estimates by more than in other quarters, according to Ed Clissold, senior global analyst at Ned Davis Research, and that sentiment is supporting stocks Monday.

"The fact that companies haven't come out with the dire earnings that were seen in the first quarter is a positive sign," he said.

Betting on recovery: Wall Street is using the second-quarter financial reports to set expectations for the pace of the economic recovery.

Investors "are looking at incremental changes in the earnings reports to give them a clue as to how companies are positioned to rebound when the economy starts to pick up some forward momentum," said Dickson.

A report from Goldman Sachs (GS, Fortune 500) released Monday increased its 2009 target for the S&P 500 index to 1060 from 940, a 13% jump in the index.

The report also cautioned that "the U.S. economic backdrop represents the most significant risk to our equity market forecast," and that "the risk of a double-dip recession is significant." Stocks hit their recent lows on March 9 of this year and have been struggling higher.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners by 3 to 1 on a volume of 1.13 billion shares. On the Nasdaq, advancers beat out decliners by almost 5 to 1 on a volume of 2.08 billion shares.

Earnings for the week: This week, 145 of the S&P 500 companies, or 23% of the broad index, are due to report quarterly results. Among them, 12 Dow components, including American Express (AXP, Fortune 500), Microsoft (MSFT, Fortune 500), Coca-Cola (KO, Fortune 500) and Merck (MRK, Fortune 500), are set to release results.

Last week, a slew of major tech and finance companies reported either better-than-expected earnings or offered positive guidance: Intel (INTC, Fortune 500), IBM (IBM, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500), and Citigroup (C, Fortune 500).

"The mood of the market was lifted by the earnings surprises last week," said Dickson. Even though companies were posting weak year-over-year sales and profits, investors were focused on the fact that companies beat analyst expectations.

Texas Instruments (TXN, Fortune 500) reported earnings after the closing bell Monday. The chipmaker posted sales that fell 27% from the year ago period and net income that plunged 56% from the same quarter a year ago. Compared to the first quarter of 2009, however, sales and profits jumped.

CIT: The board of CIT (CIT, Fortune 500) has approved a deal for a $3 billion loan from bondholders in order to stave off a bankruptcy filing, according to published reports. The deal is expected to be announced later Monday.

The small and midsize business lender has been scrambling to raise money after the government said it would not provide it additional bailout funds. CIT received $2.3 billion in aid from the government late last year.

CIT (CIT, Fortune 500) shares had lost more than 80% since the beginning of June. On Monday, shares surged 79% to $1.25 per share.

The way that CIT's financial struggles have been managed have a positive impact on the market, according to Clissold.

"If you compare it to the chaos that surrounded Lehman and AIG, it shows you how far we have come," he said.

Economic reports: The index of leading economic indicators (LEI) rose 0.7% in June, according a report from the Conference Board. Economists polled by were expecting the index to have risen by 0.5% in June, according to a consensus estimate. LEI rose 1.2% in the previous month.

Bonds: Treasury prices bounced, with the yield on the benchmark 10-year note falling to 3.61% from 3.64% Friday. Treasury prices and yields move in opposite directions.

Other markets: In global trade, Asian stocks rallied on the reports about the CIT loan, with Hong Kong's Hang Seng index ending the day up 3.7%. Tokyo was closed for a holiday. European markets ended between 1% and 2% higher.

In currency trading, the dollar lost ground against the euro and British pound. Meanwhile, the greenback edged higher against the Japanese yen, which is considered another safe-haven currency.

U.S. light crude oil for August delivery settled up 42 cents to $63.98 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery rose $11.30 to $948.80 an ounce.

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