Dow soars more than 480 points

NEW YORK -- The Dow Jones industrials stormed up almost 490 points, the second-biggest one-day gain ever, and climbed back over 8,000 Wednesday as Wall Street cheered legal and legislative action on the corporate ethics scandals that fueled nine weeks of sharp losses.

Although stocks began the day by extending a four-day losing streak, the arrest of top Adelphia Communications Corp. executives for allegedly looting the cable TV company triggered a broad rally that intensified as the session wore on. An agreement between House and Senate negotiators on legislation to crack down on corporate fraud added momentum to the advance.

Still, many market observers were dubious about the sustainability of the rebound, noting that stocks have rallied before and then pulled back.

"I'm a little skeptical," said Todd Clark, head of listed equity trading at Wells Fargo Securities. "Every time we've had one of these violent rallies, it's been a classic bear market bounce with no follow-through."

Indeed, after the market closed, AOL Time Warner said regulators were looking into its accounting practices -- a reminder that concerns about the truthfulness of corporate ledgers have not been put to rest.

The Dow closed up 488.95, or 6.4 percent, at 8,191.29, an advance second only to the 499.19-point gain it had on March 16, 2000.

The surge was also the Dow's first triple-digit gain since July 5, when the average rose 324 points. However, it still demonstrated the volatility that has swept over Wall Street lately. The Dow dropped more than 170 points early in the day before shooting higher.

Broader stock indicators also closed sharply higher. The technology-focused Nasdaq composite index advanced 61.18, or nearly 5 percent, to 1,290.23. The Standard & Poor's 500 index rose 45.73, or 5.7 percent, to 843.43.

Expected rebound

The advance was a dramatic break from the sharp selling that has plagued the market since mid-May as pessimism growing out of the accounting and ethics problems overshadowed an improving economy and healthier earnings reports. Triple-digit drops in the Dow have become the norm -- the blue chips lost 840 points over the previous four sessions alone.

But most analysts said the buying was an expected rebound following significant declines, rather than an end to the bear market.

Bill Barker, an investment strategy consultant at RBC Dain Rauscher in Dallas, said technical factors played a major role as many traders were forced to buy back stock that they had sold short. In short trades, investors sell borrowed stock, expecting the market to fall; when the market then rises, they are forced to buy stock to pay back the debt.

This process, called short covering, creates upward momentum because the higher stocks go, the more traders with shorts have to buy stock.

"I think the market is increasingly being dominated by short-term traders," Barker said.

However, Barker noted that the market began to rally shortly after the arrests of the founder of Adelphia and his two sons were reported. The accounting scandal at Adelphia has been one of several that have been weighing on market sentiment.

"The market has been waiting for this," Alan Ackerman, vice president at Fahnestock & Co., said of the Adelphia arrests. "We have a big turnaround in process, but whether it will last or not is a big question."

Some companies were rewarded for positive earnings reports Wednesday. Reebok climbed $2.13, or 9.1 percent, to $25.44 after beating analysts' estimates by 9 cents a share.

DuPont advanced $3.23 to $40.28 after reporting it swung to a profit in the second quarter despite falling sales.

J.P. Morgan Chase rose $3.22, or 16 percent, to $23.30, while Citigroup advanced $2.59, nearly 9.6 percent, to $29.59. Both stocks were pummeled Tuesday on concerns the banks would suffer from the Enron fallout.