Intel triggers Wall Street rally

US stocks rallied on Wednesday, with the Dow Jones Industrial Average enjoying its best day since early April, as strong earnings from chipmaker Intel encouraged investors to buy riskier assets.

Stocks in material, industrial, energy and financial companies, which are sensitive to growth, all did well.

But technology kicked off the rally after Intel reported better revenues and profits than expected and its shares jumped 7.3 per cent to $18.05.

The microchip sector was given a further boost by better-than-expected results from Altera, which beat revenues and profit estimates and, like Intel, said profit margins would rise this year. Its shares picked up 4.2 per cent to $17.26.

Other chipmakers also felt the benefit with AMD, Intel’s main rival, gaining 8.7 per cent to $3.86.

Intel’s strong sales also provided optimism over personal computer sales and PC makers rose accordingly. Hewlett-Packard gained 4.5 per cent to $38.82.

The rally gathered pace during the day and an upward revision in theFederal Reserve’s unemployment forecasts failed to knock it off course, as investors took confidence in a simultaneuos upgrade in the growth predictions.

“The Intel numbers are enough to fuel the rally in the short term, but eventually the US unemployment rate is going to have an effect on the rest of the world,” said Dave Rovelli, managing director of trading at Cannacord Adams.

The benchmark S&P 500 index closed 3 per cent up at 932.68, while the Dow rose 3.1 per cent to 8,616.21 and the tech-heavy Nasdaq Composite index gained 3.5 per cent to 1,862.90.

Anu Sharma, managing director of Nasdaq’s Market Intelligence Desk, described trading as a “short squeeze”, with short sellers having to buy back stocks in the worry that they might suffer heavy losses if the market rises further.

There was also a warning sign on the stability of the current rally from the Vix index, a measure of implied volatility that usually drops when the market rises. It gained 3.4 per cent to 25.87 on Wednesday, suggesting investors were betting on an imminent drop.

Materials stocks were also higher as the prices of metals picked up. Freeport McMoRan, which mines copper and gold, rose 5.7 per cent to $50.91. Its rival Newmont Mining gained 3.4 per cent to $40.45.

Energy stocks were higher as the price of oil jumped. Chevron rose 2.5 per cent to $64.57 and Schlumberger climbed 5.3 per cent to $54.56. Investors also bought financial stocks, with banking shares continuing to bask in the afterglow of bumper profits from Goldman Sachs.

But it was credit card companies that stood out after Capital One and Discover Financial both said loan losses in June had not been as bad as expected, in spite of the rising unemployment rate. Capital One jumped 11.8 per cent to $25.84 and Discover gained 6.2 per cent to $10.85.

Shares in industrial companies also took part in the rally, helped by data showing industrial production had shrunk less than expected and factory output in the New York region had dropped by the smallest amount in over a year.

General Electric rose 5.2 per cent to $12.24 and Caterpillar, which manufactures equipment for the industrial sector, put on 6 per cent to $33.84.

The airline sector was boosted by AMR, the parent company of American Airlines, which reported a smaller-than-expected loss, which lifted the shares 4.3 per cent to $4.36.

The general market optimism was tempered, however, by disappointing profits from Abbott Labs, one of the largest US drugmakers. The company also forecast full-year profits at the lower end of analysts’ expectations and the shares fell 2.6 per cent to $45.28.

There were also worrying signs on consumer spending from Yum Brands, which operates the Pizza Hut and KFC fast-food franchises.

It reported better earnings than expected but warned the rise in its same-store sales this year would disappoint. The stock lost 5.5 per cent to $34.05.

Results from Gannett, which publishes USA Today, were more encouraging. It saw better-than-expected profit, powered by its online businesses. The shares soared 28.9 per cent to $4.50.