Wall Street recharges the rally

By Alexandra Twin, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Stocks rallied Tuesday, with IBM leading a tech charge ahead of its quarterly results, released after the close of trade. A variety of health care and consumer product companies also added to the run, as investors sought to restart the run.

Citigroup's quarterly loss, a stronger dollar and Kraft's buyout of Cadbury were also in the mix.

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The Dow Jones industrial average (INDU) gained 115 points, or 1.1%. The S&P 500 index (SPX) added 14 points, or 1.3%. The Nasdaq composite (COMP) rose 32 points, or 1.4%. The Dow and the S&P 500 ended at fresh 15-month highs and the Nasdaq ended at a new 16-month high.

After the close, IBM (IBM, Fortune 500) reported higher quarterly sales and earnings that topped estimates. But investors took a 'sell the news' approach and sent shares 1% lower in extended-hours trading.

IBM said it earned $3.59 per share versus $3.28 a year ago. Analysts surveyed by Thomson Reuters thought IBM would earn $3.47 per share. Sales rose modestly to $27.23 billion from $27 billion a year ago. Analysts thought sales would dip to $26.96 billion.

Looking forward, IBM said it expects earnings per share of at least $11 for 2010.

Stocks opened weaker following Citigroup's results, but soon turned higher as investors found reason to jump back into the market after Monday's holiday.

Gains were broad based, with 26 of 30 Dow components rising, led by Caterpillar (CAT, Fortune 500), IBM (IBM, Fortune 500), Johnson & Johnson (JNJ, Fortune 500), McDonald's (MCD, Fortune 500), 3M (MMM, Fortune 500), Merck (MRK, Fortune 500), 3M (MMM, Fortune 500) and Procter & Gamble (PG, Fortune 500).

Health care stocks jumped on bets that a Republican election to the Massachusetts U.S. Senate seat previously held by the late Ted Kennedy could stall or kill health care reform by ending the Democrats' filibuster-proof status. Polls were due to close at 8 p.m. ET.

All financial markets were closed Monday for the Martin Luther King holiday. Markets on Friday ended lower despite better-than-expected profit reports from JPMorgan Chase and Intel.

After a robust 2009, stocks were expected to drift at the beginning of the new year. But the momentum has remained positive and year-to-date, the S&P 500 is up 3%.

"The first half of 2010 is probably going to be an extension of the latter part of 2009," said Tommy Williams, president at Williams Financial Advisors. "Earnings are going to show strength versus a year ago, retail sales are picking up and unemployment will start to show some improvement."

However, he said that the second half of the year is likely to be trickier. "In the second half, there appear to be headwinds that could slow things down," Williams said. "But in the short term, I am optimistic."

Quarterly results: Financial firm Citigroup (C, Fortune 500) reported a $7.6 billion quarterly loss, partly due to the bank paying back the government $20 billion in bailout funds. On a per-share basis, Citigroup lost 33 cents, in line with forecasts, after reporting a loss of $2.44 a share in the prior year's quarter.

On the upside, the company said consumer credit losses dropped in the quarter, and that it also set aside less money for bad loans during the quarter.

Some 57 of the companies in the S&P 500 are due to report results this week, with the focus on banks. Wells Fargo (WFC, Fortune 500), Bank of America (BAC, Fortune 500), Morgan Stanley (MS, Fortune 500), American Express (AXP, Fortune 500) and a number of regional banks are all due.

S&P 500 earnings are expected to have risen 186% versus a year ago and revenue is expected to have risen 7% according to the latest forecast from earnings tracker Thomson Reuters.

But the jump is largely attributable to a spike in financial sector results versus an abysmal fourth quarter of 2008 amid the height of the financial crisis. Without the financial sector, earnings growth slips to 8% and revenue growth falls to 1%.

Kraft buys Cadbury: The British candy company agreed to a larger $19.5 billion takeover offer from U.S. food maker Kraft Foods (KFT, Fortune 500) in a deal that puts an end to a four-month fight. The board on Tuesday recommended shareholders take Kraft's cash-and-stock offer in a move that will create the world's biggest chocolate maker.

Shares of Kraft, a Dow component, fell 0.6%, cutting earlier losses. American-traded shares of Cadbury (CBY) rose 6%.

World markets: Asian markets ended mixed, with Japan's Nikkei lower and Hong Kong's Hang Seng higher. European markets ended higher, reversing earlier losses.

Commodities and the dollar: The dollar gained versus the euro and the yen.

COMEX gold for February delivery rose $9.50 to settle at $1,140 an ounce. Gold closed at an all-time high of $1,218.30 an ounce last month.

U.S. light crude oil for February delivery rose $1.02 to settle at $79.02 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices fell, raising the yield on the 10-year note to 3.69% from 3.67% late Friday. Treasury markets were closed Monday. Treasury prices and yields move in opposite directions.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by over three to one on volume of 1.036 billion shares. On the Nasdaq, advancers topped decliners by over two to one on volume of 2.08 billion shares. To top of page

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