Wall St rallies as earnings season winds down

It was a good week for big and small cap stocks as the earnings season began winding down and several blockbuster deals and new listings ignited bursts of activity.

The Dow Jones Industrial Average and the small cap Russell 2000 set record highs while the S&P 500 ultimately closed above the 1,400 threshold for the first time since November 2000.

Softer inflation data, and moderating growth figures suggest the Federal Reserve is engineering a soft landing for the economy in 2007, a boon for equities.

Analysts said investors who had previously shunned stocks were now chasing performance before the end of the year. “There are people who were offside and they are now trying to catch up,” said William Strazzullo, chief market strategist at Bell Curve Trading. “Stocks have the potential to push higher with the S&P looking at 1,430 to 1,440.”

Boosting activity on Friday was the blockbuster debut of the New York Mercantile Exchange , after the energy exchange listed at $59 a share and briefly soared 156.4 per cent to a high of $151.26. In mid-afternoon trade in New York, it was trading at $132.99, a gain of 125.4 per cent on the day.

Another new listing was KBR , a unit of Halliburton , which gained 29.1 per cent to $21.95 after a debut at $17 a share. Shares in Hertz listed at $15 and were up 4.4 per cent at $15.66.

Shares in US Steel , surged 11.4 per cent on Friday amid talk of further global consolidation. Shares were 6.1 per cent higher for the week at $70.57.

Consolidation among airlines was another talking point. US Airways launched an $8bn unsolicited cash and stock offer for Delta Air Lines , which is in bankruptcy protection. Shares in US Airways hit a 52-week high of $62.57 and were up 20.6 per cent at $59.45. The American Stock Exchange airline index notched a 52-week high of 62.04 and was 7.9 per cent higher at 60.03.

The Dow Jones Transportation Average index led broader indices and was 2.4 per cent higher for the week. “It is unlikely only one airline merger will be proposed. Given the potential economies of scale, we believe that no airline wants to be left as a niche carrier,” noted UBS.

Other airline shares rose sharply, including Continental , up 16.7 per cent at $42.49. JetBlue , up 9.9 per cent to $14.58, and AirTran , which gained 26.3 per cent to $13.03, helped in part by upgrades.

Radio station operator Clear Channel Communications agreed to a $19bn purchase at a share price of $37.60 by a consortium of private equity firms. Its shares were 0.7 per cent higher for the week at $35.22.

Magazine publisher Readers Digest rose 11.4 per cent to $16.89 after it agreed to be acquired by an investor group led by Ripplewood Holdings in a $2.4bn deal (including assumption of debt).

Gene-testing technology company Illumina announced it would buy Solexa in a $600m stock deal. Solexa shares gained 33.9 per cent to $12.99 while Illumina fell 8.4 per cent to $40.33.

Shares in Black & Decker jumped 5.2 per cent to $88.06 after activist investor Bill Ackman disclosed he had bought a 1.9 per cent stake.

Shares in Dell endured a mixed week and closed up 0.5 per cent at $25.02.

After an upgrade from Deutsche early in the week, the company held back its third-quarter results as the Securities and Exchange Commission widened its probe into the computer manufacturer’s accounting.

Despite posting a 51 per cent fall in fiscal fourth-quarter profit, homebuilder DR Horton still beat consensus forecasts and its shares rallied 11.7 per cent to $25.10.

The Philadelphia semiconductor index rose 5.7 per cent for the week after Citigroup upgraded the sector. Intel rose 7.4 per cent to $22.10, boosted in part by Citigroup adding the stock to its recommended list.

Vanda Pharmaceuticals rose 45.7 per cent to $14.88, buoyed by its experimental insomnia drug proving effective in trials.

Boeing gained 4.6 per cent to $89.52 on reports it may soon receive $10bn in new aircraft sales. At the close in New York on Friday, the S&P 500 was up 1.5 per cent for the week at 1,401.2, the Dow had gained 1.9 per cent to a record close of 12,342.56 and the Nasdaq Composite was 2.3 per cent firmer at 2,445.86.

The Amex Broker/Dealer index rose 3.1 per cent, and set a new 52-week high at 242.99.