Summer Run in Home Stretch

RECORD SALES of new homes won polite applause on Wall Street Monday as bargain-hunters rallied stocks from sizeable early losses.

The Dow gained 46 points to 8919, while the Nasdaq rose 11 to 1391. The S&P 500 advanced 7 to 948.

Media and telecom-equipment stocks connected with bottom-fishers. Banks, utilities, oil drillers and gold miners also panned out. The biotech, Internet and fast-food sectors caused heartburn.

J.P. Morgan Chase (JPM), General Motors (GM) and AT&T (T) led the blue chips with gains of 3% each.

Shares of media giant AOL Time Warner (AOL) fell 4%, depressed by ongoing federal probes into its accounting. These have stoked fears that the company's Internet advertising sales were misleadingly pumped up with offsetting investments and other inducements.

Sales of new homes jumped 6.7% in July to an annual rate of 1.017 million units. That represented an increase of more than 15% in a year's time. Existing home sales rose 4.5%, rebounding from an unexpected drop the prior month.

The housing boom has underpinned an uneven recovery delayed by the continuing slump in business investment. But its latest manifestations failed to stir stocks sitting on impressive relief gains. Many of the bulls responsible for the monthlong rally are expected to rest on the beach this week instead of pushing their luck on Wall Street.

The remaining optimists had to reckon with reports suggesting that many economic sectors are nowhere near as hot as real estate. After complaining in the spring about bad weather, retailers cursed excessive sunshine, with Wal-Mart (WMT) reporting that this month's sales are growing at the low end of its forecast range, hurt by unseasonably warm temperatures. That still implies annual growth of 4%; Wal-Mart's stock was little changed. Macy's and Bloomingdale's parent Federated (FD) rose 1% despite cautioning that sales have recently dropped more than expected.

Some traders also checked out of hotel stocks after PricewaterhouseCoopers' crystal ball told investors not to expect a recovery next year from the lowest occupancy rates in 75 years. Meanwhile, job growth remains on hold. "The improvement in planned hiring activity that we saw in the past two quarterly surveys has marginally slowed," concluded Manpower's employment outlook survey.

Hershey Foods (HSY) shares sweetened 2% after USA Today reported that Swiss multinational Nestle has informally offered $11.5 billion for the U.S. chocolate maker. That would translate into $82 to $85 per Hershey share, though a Nestle spokesman dismissed the report as "market fantasy." Any bid from Nestle would have to overcome expected offers from Kraft (KFT) and possibly other food processors, as well as attempts by politicians to scuttle the sale of an icon with deep local roots.

Suspense also built ahead of Hewlett-Packard's (HPQ) earnings report Tuesday, the PC maker's first chance to show that its controversial merger with rival Compaq is bearing fruit. Salomon Smith Barney is expecting "a mixed bag but good enough to preserve recent gains in the stock." But Banc of America Securities worries that revenue and the sales forecast could disappoint. The stock gained 1%.

Shares of United Parcel Service (UPS) dipped 1% after Morgan Stanley downgraded the stock to Equal Weight. The investment bank complained that "valuation is beginning to get stretched" given the stock's 12% run over the last three months.

The same suspicion haunts the broader market after its rally off the July lows. Investors have recently poured spare cash into the stocks that have trailed the overall advance, lifting such beaten down sectors as utilities, airlines and wireless telecoms. Monday's featured fixer-upper was the telecom-equipment supplier Ciena (CIEN), which recently reported a quarterly loss three times the value of its sales. Its stock surged 6% after SoundView Technology upgraded the shares to Outperform, arguing that the company's decision to spend down its $2.2 billion rainy-day stash should "enhance [its] leadership position."

In absolute terms, Ciena shares that have traded as high as $22 in the last year gained 23 cents to $4.39. Fellow amputee Lucent Technologies (LU) also got in some healing, rising 38 cents, or 25%.

Bonds went nowhere fast. The yield on the 10-year Treasury note slipped to 4.22% from 4.23% late Friday, while the two-year note yielded 2.13%, up from 2.12% at the end of last week