Stocks Rally on Spending Data

NEW YORK – Stocks rallied Tuesday, buoyed by an upbeat brokerage report about Web equipment giant Cisco Systems Inc. and a better-than-expected consumer spending report.

The blue-chip Dow Jones industrial average rose 121.09 points, or 1.16 percent, to end the day at 10,522.81, while the technology-dominated Nasdaq Composite Index rose 9.29 points to 2,027.13.

The broader Standard & Poor's 500 Index added 6.7 points to 1,211.22.

For July, the Dow edged up 0.2 percent, the Nasdaq composite fell 6.5 percent, and the S&P 500 lost 1.1 percent. Year to date, the Dow is off 2.45 percent, the Nasdaq is down nearly 18 percent and the S&P 500 is off 8.3 percent.

Volume was light throughout the session. Advancing issues on the Big Board outnumbered decliners, 1,887 to 1,224. On the Nasdaq, 1,934 stocks rose and 1,819 fell.

Investors got some upbeat data from the Commerce Department showing U.S. consumer spending, the engine of the economy, rose 0.4 percent in June, led by demand for durable goods. Economists on average expected spending to rise 0.3 percent.

"Investors are focusing more on the consumption number," said Al Kugel, senior investment strategist at Stein Roe & Farnham, part of the $70 billion Liberty Funds Group. "What it says that in spite of all the (economic) problems, all the lay-off announcements and all the talk of recession, consumers are still buying at a pretty good clip.''

On a more sobering note, the Conference Board's consumer confidence report showed consumer confidence fell to 116.50 in July against a revised 118.90 June reading. Economists in a Reuters survey on average expected the July consumer confidence data to read 117.5 against June's prior reading of 117.9.

Cisco rose 33 cents to $19.22, boosting the Nasdaq. Salomon Smith Barney issued an upbeat note on the Web gear giant, saying the company, which is due to issue its fiscal fourth-quarter results next week on Aug. 7, was likely to have a relatively upbeat outlook for the future.

``While we expected guidance to be tinged with caution, we also expect the outlook to be generally upbeat,'' Salomon analyst B. Alexander Henderson told clients in a note, adding he expects Cisco shares to react positively to the company's earnings report and outlook.

A host of other marquee high-tech names rallied, including Cisco rival Juniper Networks, up 47 cents to $25.69 on the Nasdaq. Top computer chip maker Intel Corp. advanced 77 cents to $29.81 on Nasdaq. Intel, also among the 30 Dow stocks, helped the blue-chip average as well. also, Microsoft Corp. tacked on a 39-cent gain to $66.19.

The rise in consumer spending was led by demand for durable goods, which include items like autos and refrigerators. The reading, issued ahead of the market's open, beat economists' expectations of a 0.3 percent rise. With consumers' wallets expected to be fattened soon by tax rebate checks from Uncle Sam, analysts said consumption numbers may, in fact, rise even more next month.

``What it says is that in spite of all the (economic) problems, all the layoff announcements and all the talk of recession, consumers are still buying at a pretty good clip,'' said Al Kugel, senior investment strategist at Stein Roe & Farnham,

``And this is June, so it's before the rebate checks are in people's hands. I would expect that we see the August consumption have a pretty good jump,'' added Kugel, whose firm is part of the $70 billion Liberty Funds Group.

Among Tuesday's other upbeat data were two reports showing a rise in retail sales.

U.S. chain store sales rebounded to rise 0.3 percent in the week ended July 28 after two weeks of declines, though customer turnout at malls was weak, the Bank of Tokyo-Mitsubishi and UBS Warburg said. A report issued concurrently by Instinet Research showed U.S. retail sales at discount, chain and department stores rose 1.3 percent during the first two retail weeks of July.

Retail stocks moved higher, with the S&P Retail Index up 1.28 percent. Among the Dow stocks, Home Depot, the leading home improvement retailer, added $1.22 to $50.77 and Wal-Mart Stores gained 11 cents to $55.99.

But Motorola Inc. shed 34 cents to $18.69, ranking as the second most-active stock on the New York Stock Exchange. The wireless technology company said it would return to profitability in the fourth quarter, but declined to forecast next year's results due to the market's unpredictability.

Mercury Computer Systems Inc. lost a hefty 35 percent. The supplier of digital signal and image processing systems reported higher earnings, but warned of short-term earnings weakness amid a downturn in the domestic defense industry spending. Shares dropped $17.10 to $31.65.

Verizon Communications fell $1.87 to $54.15. The No. 1 U.S. local telephone company said quarterly profits, before unusual items, rose amid strong sales of data services, but it cut its growth outlook for the full year due to the weak economy and soft demand for basic telephone services.

Transocean Sedco Forex Inc. dropped $4.14 to $32.29 after the world's biggest offshore oil and gas drilling contractor warned it expects full-year earnings for 2001 and 2002 to fall short of Street estimates. The news hit other stocks in the volatile oilfield services and drilling sector. The Philadelphia oil services index lost 3.82 percent.

The Russell 2000 index, which measures the performance of smaller company stocks, eked out a small gain, up 0.07 at 484.78.

Overseas markets were also higher Tuesday. Japan's Nikkei stock average finished the day up 2.4 percent. In afternoon trading, Germany's DAX index was up 0.8 percent, Britain's FT-SE 100 rose 1.5 percent, and France's CAC-40 advanced 1.0 percent.

-- The Associated Press and Reuters contributed to this report.