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updated 5/26/2004 9:39:00 AM ET 2004-05-26T13:39:00

Stock indices surged Tuesday, as fresh data on home sales and steady consumer confidence outweighed lingering concerns about higher oil prices and the continuing struggle in Iraq.

Major Market Indices

Analysts said investors may have interpreted the U.S. consumer confidence report for May, released earlier in the session, as a sign that economic growth is moderating. That helps to ease worries about inflation and seeds hopes of strong, consistent corporate profits in coming months, they said.

But Tuesday’s rally was less about a single news item than it was a reflection of gradually changing sentiment, analysts added.

“I don’t see any of those events today as being market movers,” said Hugh Johnson, chief investment officer at First Albany Corp. “The message of the market is that it’s starting to look as though conditions are starting to get stable ... and I think that’s giving us a lot of relief.”

John P. Waterman, chief investment officer at Rittenhouse Asset Management, also noted that investors were beginning to move beyond their lingering concerns about higher oil prices as well as tightening interest rates.

“At some point, the people who want to sell are done selling,” Waterman said. “Then the ones who are believers, who have hung in there, step in.”

The price of crude oil, which has risen sharply in recent sessions, raising concerns it might crimp economic growth, fell sharply in afternoon trading on the New York Mercantile Exchange on forecasts that U.S. inventories rose in the week to last Friday, traders said.

A lower oil price "is a huge catalyst, coupled with the fact we broke through 1,100 on the S&P, which is a very bullish sign and the first time that happened in about a week," said Michael O'Hare, head of block trading at Lehman Brothers. "Once it consolidated up there, we saw institutional money come in," he added.

Despite a slow start, the Dow Jones industrial average closed with a gain of 159.19 points, or 1.6 percent, notching up its biggest advance since March 25. The broader Standard & Poor’s 500-stock index added 17.64 points, or 1.6 percent, also seeing its biggest gain since March 25. The Nasdaq composite index rose 41.67 points, or 2.2 percent — its best performance since April 28.

In a slow week for economic and corporate news ahead of the Memorial Day holiday, the market reacted positive to the consumer confidence report. Most U.S. financial markets will be closed next Monday for Memorial Day, traditionally seen as the start of the summer vacation season.

Early in the session, the Conference Board reported that its Consumer Confidence Index for May edged up to 93.2 from a revised 93.0 reading in April.

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In a separate report, the National Association of Realtors said sales of existing homes went at a seasonally adjusted annual rate of 6.64 million last month, a 2.5 percent increase over the prior month. Home buyers were scrambling to lock in deals before mortgage rates move higher.

However, overseas markets were rattled Tuesday by lingering concerns over higher oil prices as well as concerns about the situation in Iraq. In a speech Monday night, President Bush offered no clear exit strategy for U.S. troops.

Japan’s Nikkei stock average fell 1.3 percent, Britain’s FTSE 100 fell 0.3 percent, Germany’s DAX index lost 1 percent and France’s CAC-40 finished the day down 0.5 percent.

Health-care companies Johnson & Johnson and Boston Scientific Corp. led the gainers on the S&P 500 index.

But SBC Communications weighed on the Dow after the phone company and a union representing thousands of workers reached a tentative new contract. The Dow's strongest stocks included American International Group, ExxonMobil and Citigroup.

Genworth Financial Inc. shares traded at $19.49, slightly below their initial public offering price of $19.50. The flotation of General Electric Co.’s insurance unit was the largest IPO of the year.

On the New York Stock Exchange, H.J. Heinz Co.’s shares were up 54 cents at $37.60 after the food maker reported that profits nearly doubled in the latest quarter to $196.5 million from $102.6 million.

Krispy Kreme Doughnuts Inc. ended higher, after saying it would cut the number of new stores it plans to open as the low-carb diet craze curbed demand for doughnuts. The doughnut chain also reported its first quarterly net loss since going public four years ago. Its shares rose 3 cents to $19.88.

Medical device maker Medtronic Inc.’s shares were off 6 cents at $47.29, despite reporting a 17 percent increase in earnings, as investors worried that the benefits the company was reaping from the weakening dollar could fade.

Reuters and the Associated Press contributed to this report.


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