NEW YORK -- U.S. stocks surged Tuesday, driving the Nasdaq composite index to its biggest ever one-day gain in both points and percentage terms, on optimism that a recent shakeout in technology issues has created bargains and that the Federal Reserve's campaign of interest rate rise may be near an end.
Semiconductor issues led the rally after analysts said demand for personal computers is pulling along prices for computer hardware such as processors and memory chips. Lehman Brothers said in a research note it believed 2000 would be the best year of revenue and earnings per share growth for computer hardware companies since 1996.
"We're very oversold, corporate news is relatively good, consolidation in tech and telecom continues to go on, and bargain hunters are out there," said Arthur Hogan, chief market analyst at Jefferies & Co.
The technology-dominated Nasdaq Composite Index gained 254.21 points, or 7.93 percent, to 3,459.32, its biggest-ever single-day advance in percentage and points and more than wiping out its losses from last week.
The blue chip Dow Jones industrial average shot up 227.89 points, or 2.21 percent, to 10,527.13, while the Standard & Poor's 500 index jumped 44.40 points, or 3.22 percent, to 1,422.42.
Among the semiconductor shares to climb was global leader Intel (INTC) which jumped 8-3/16 to 125-3/4, and Advanced Micro Devices (AMD) up 11 at 85. Also gaining in the sector was Micron Technology (MU) up 3 at 68 and Texas Instruments (TXN) which owns 20 percent of Micron, up 5-3/4 to 72-1/2.
Lehman analyst Dan Niles said the expected installation of Windows 2000 systems is prompting corporate information technology departments to buy faster processors and higher-capacity memory chips.
We believe the average memory per box will increase from about 90 Mb per system toward 128 Mb by the end of the year," he said. "We believe that the DRAM industry is in its best shape since 1995 and that we will see a DRAM shortage by the end of the year."
Donaldson, Lufkin and Jenrette analyst Boris Petersik also said in a research note that he expects to see a strengthening for the balance of the year in the price of DRAM chips.
Software makers also rallied, with Oracle (ORCL) gaining 7-3/16 to 74-3/16. Networking systems makers, the companies building the plumbing for the Internet, did not miss out either -- among them Cisco Systems (CSCO) rose 4-15/16 to 59-7/8.
Leading strategists at two Wall Street houses said economic data indicate the Fed's campaign to navigate the high-flying U.S. economy back to earth through interest-rate increases is beginning to take hold.
With the Fed's desired effect coming through, there is a chance the central bank will resist another rate increase when the committee that makes the decision meets at the end of June.
Merrill Lynch chief economist Bruce Steinberg told clients, "We expect the Fed to tighten by 25 basis points on June 28, but if forthcoming data are also soft, the Fed may take a pass."
Similarly, Thomas Galvin, chief investment officer at Donaldson Lufkin & Jenrette, said, "Anyone who believes the Fed's actions are not being felt in the stealth U.S. economy has chosen not to believe Commerce Department data or is not listening to companies," referring to news from several retailers about sales slowdown, among other similar announcements.
The market largely shrugged off news of stronger-than expected U.S. economic data. The Conference Board reported its consumer confidence index spiked to near record levels. The index increased in May to 144.4 from a revised 137.7 in April, exceeding Wall Street estimates of 135.9.
Investors will continue to focus on economic data this week for clues on the Federal Reserve's next move on interest rates, analysts said, particularly Friday's employment report.
