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Health stocks pull US market higher

INVESTORS moved back into stocks on hopes that an election in Massachusetts will weaken Senate Democrats and make it harder for President Barack Obama to make changes to health care.

The vote yesterday to fill the seat of late Sen. Edward M. Kennedy could shift power in the Senate if Republican Scott Brown wins. That would give Republicans the 41 votes necessary to block Democratic proposals, including the health care bill.

The prospect of a logjam in Washington over health care eased concerns that profits at companies like insurers and drug makers would suffer. Rising health stocks pulled the broader market higher.

The Dow Jones industrial average rose 116 points to a 15-month high after sliding 101 on Friday. Broader indexes also rose and demand for the safety of government debt waned.

Meanwhile, Kraft Foods Inc.'s agreement to acquire Cadbury PLC for US$19.5 billion boosted hopes that corporate dealmaking will continue to rebound. Investors see buyouts as a sign of confidence in the economy.

Technology stocks got a boost after a Credit Suisse analyst raised his rating on Ciena Corp., a maker of telecommunications equipment, predicting that revenue would exceed expectations.

Shares of tech companies will draw more attention Wednesday after IBM Corp. reported a 9 percent increase in earnings for the final three months of 2009. The company said after the closing bell yesterday that its revenue rose for the first time in a year and a half. IBM also predicted that its 2010 earnings will come in at the high end of its previous forecast.

Tuesday's gains came after stocks fell Friday when JPMorgan Chase & Co.'s quarterly results fell short of expectations. U.S. markets were closed Monday for Martin Luther King Jr. Day.

Analysts said that beyond a possible shift in plans for health care, the week's earnings reports will help chart the market's course in the coming months as companies update their expectations for the economy.

The stock market has been climbing for 10 months on hopes that an easing recession would boost corporate profits. But lingering problems like high unemployment and a weak housing market have raised questions about whether the jump in stocks is premature.

"This is just a critical period when we get to see the litmus test of earnings and then guidance," said Philip S. Dow, managing director of equity strategy at RBC Wealth Management in Minneapolis.

The Dow rose 115.78, or 1.1 percent, to 10,725.43. The broader Standard & Poor's 500 index rose 14.20, or 1.3 percent, to 1,150.23. It was the highest close for the Dow and the S&P 500 index since Oct. 1, 2008.

The Nasdaq composite index rose 32.41, or 1.4 percent, to 2,320.40.

Brett Hryb, a portfolio manager with MFC Global Investment Management in Toronto, said a defeat of the health bill could help some companies but that a win by Brown would not necessarily make that certain.

"It's not a slam dunk by any means," he said.

Among health stocks, insurers Aetna Inc. rose US$1.30, or 4.2 percent, to US$32.66 and UnitedHealth Group Inc. rose US$1.38, or 4.1 percent, to US$35.13. Pharmaceutical company Pfizer Inc. advanced 51 cents, or 2.6 percent, to US$20.

Shares of Cadbury rose US$3.19, or 6.2 percent, to US$55.09. Kraft slipped 17 cents, or 0.6 percent, to US$29.41.

Ciena jumped US$1.28, or 11 percent, to US$12.91.

Citigroup Inc. rose 12 cents, or 3.5 percent, to US$3.54 after reporting a fourth-quarter loss of US$7.6 billion mostly tied to repayment of US$20 billion in government bailout money. The company said it is starting to see some stabilizing in the number of mortgage and credit card loans that are past due.

Earnings reports are due this week from Bank of America Corp., eBay Inc., General Electric Co., Goldman Sachs Group Inc., Google Inc., Morgan Stanley and Wells Fargo & Co.

Analysts said investors are hunting for clues about whether the market will continue its run in 2010 or begin to sputter if the economy doesn't show more signs it is strengthening.

"Everybody is looking for that catalyst that is going to take us higher," said Anthony Conroy, managing director and head trader for BNY ConvergEx Group. He contends that the market will find strength from companies that surprise investors by reporting stronger profits.

But Hryb said the run in stocks since March has left stocks with rich valuations and that even with big earnings stocks could be getting pricey.

"It is a tug-of-war between the growth in the earnings and what people are willing to pay for those earnings," Hryb said.

Bond prices fell, pushing their yields higher. The yield on the benchmark 10-year Treasury note rose to 3.71 percent from 3.68 percent late Friday.

The dollar mostly rose against other major currencies. Gold advanced, while crude oil rose US$1.02 to settle at US$79.02 per barrel on the New York Mercantile Exchange.

Three stocks rose for every one that fell at the New York Stock Exchange, where volume fell to 1 billion shares from 1.4 billion Friday.

The Russell 2000 index of smaller companies rose 11.19, or 1.8 percent, to 649.15.


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