AP Business WriterNEW YORK (AP) -- A possible settlement in the Microsoft antitrust case and a positive outlook for the semiconductor industry gave the stock market a big lift Thursday, outweighing drops in manufacturing activity and consumer spending and rising layoffs.
Analysts said the news made investors feel more secure about a business turnaround next year.
"Investors are pinning their hopes on an economic recovery in 2002, and taking anything negative they hear with a grain of salt. Expectations are so low that when there is any good news stocks will rally," said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia.
The Dow Jones industrial average closed up 188.76, or 2.1 percent, at 9,263.90, according to preliminary calculations. The Dow got its biggest boost from Microsoft, which rose $3.69 to $61.84.
The broader market also registered significant gains. The Nasdaq composite index rose 56.10, or 3.3 percent, to 1,746.30, and the Standard & Poor's 500 index advanced 24.32, or 2.3 percent, to 1,084.10.
Analysts attributed Wall Street's success Thursday to investors being willing to place bets on a brighter business picture in 2002.
Third-quarter earnings were so weak that it won't be hard for results to look better starting next quarter, said Ronald J. Hill, investment strategist at Brown Brothers Harriman & Co. in New York.
"Every new bull market starts with prices going up while profits are going down as investors anticipate the rebound about to come," Hill said.
Still, other analysts cautioned that in the near term, market upturns could be short-lived, given the protracted economic slump, the political uneasiness following the Sept. 11 terrorist attacks and the spread of anthrax that began soon after.
"With the uncertainty of what is going on ... it is very difficult to pinpoint how investors are going to react in the coming weeks, much less the next hour," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif.
On Thursday, the tech sector posted the biggest gains, benefitting from news that Microsoft and the Justice Department have reached a tentative agreement to settle the antitrust case. State attorneys general that sued Microsoft were reviewing terms of the deal, according to people familiar with the talks.
The computer industry has been anxiously awaiting a possible settlement and hoping it would help struggling tech companies. Likewise, Thursday's winners included PC and software makers. Dell Computer rose 57 cents to $24.55, while Oracle advanced 61 cents to $14.17.
Semiconductors benefited from a positive forecast from the industry. Although worldwide sales of semiconductors fell 44.6 percent to $10.2 billion in September compared with a year ago, there are signs of improvement in the fourth quarter and next year, according to the Semiconductor Industry Association.
Advancing on that news, Intel rose $1.52 to $25.94, and Advanced Micro Devices gained $1.66 to $11.50.
The positive outlook for the semiconductor industry and the Microsoft development helped stocks withstand bad news about manufacturing and consumer spending.
Manufacturing activity declined for the 15th consecutive month in October, pushed lower by the terrorist attacks in Washington and New York. The National Association of Purchasing Management said Thursday its index of business activity plunged to 39.8 from 47 in September. Analysts had been expecting a reading of 44.5.
Consumer spending dropped 1.8 percent drop in September, the largest decline since a decrease of the same amount in January 1987, according to the Commerce Department. The last time the loss was higher was in May 1960, when consumers cut spending by 1.9 percent.
Still, consumer and manufacturing sectors were higher on Wall Street. DaimlerChrysler gained $1.40 to $36, Target rose $1.04 to $32.19 and 3M advanced $1.89 to $106.27.
Gains were so widespread that the Dow had just two losing stocks: AT&T, off 21 cents at $15.04, and United Technologies, slipping 19 cents to $53.70.
Advancing issues outnumbered decliners more than 2 to 1 on the New York Stock Exchange. Volume came to 1.29 billion shares, compared with the 1.31 billion shares traded Wednesday.
The Russell 2000 index, which tracks smaller company stocks, rose 6.71, or 1.6 percent, to 434.88.
Overseas markets were mixed Thursday. Japan's Nikkei stock average finished with a slight loss of 0.2 percent. Britain's FT-SE 100 and France's CAC-40 each closed up 0.6 percent, and Germany's DAX index gained 1.7 percent.
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