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Dow tops 12,000 as economy's strength stokes bulls

February 1, 2011 |  1:58 pm

Wall Street’s bulls drove the stock market to new multiyear highs Tuesday, emboldened by fresh signs that the economy’s momentum in the fourth quarter spilled into January.

Click here to see an interactive graphic on the Dow The Dow Jones industrial average closed above the 12,000 level for the first time since June 2008 --   another milestone in the market’s rebound from its deep plunge after the financial crisis.

Shaking off the continuing social unrest in the Middle East, the Dow jumped 148.23 points, or 1.2%, to end the session at 12,040.16.

The blue-chip index now is up 84% from its 12-year low of 6,547 reached in March 2009. It's still 15% below its record high of 14,164 set in October 2007.

Dow12 Most market indexes on Tuesday posted their biggest gains of the new year. The Standard & Poor’s 500 index rose 1.7% and the tech-dominated Nasdaq composite rallied 1.9%.

While the prospect of revolution in Egypt had sent oil prices surging Friday and triggered a global sell-off in stocks, by Monday equity markets were stabilizing.

On Tuesday, buyers swarmed again after the Institute for Supply Management said its index of U.S. manufacturing activity nationwide in January rose to the highest level since May 2004.

The index came in at 60.8 compared with analysts’ consensus estimate of 58.0. Any index reading above 50 indicates expansion.

Despite the risks posed by Middle East unrest, stock investors are taking the view that “when the domestic economy’s momentum really starts to kick in, the rest of this stuff doesn’t matter,” said Barry Knapp, equity strategist at Barclays Capital in New York.

A pullback in oil prices also buoyed the mood Tuesday. Near-term crude futures in New York fell $1.42 to $90.77 a barrel after reaching a two-year high Monday.

Investors also have been encouraged by generally strong fourth-quarter corporate earnings. Better-than-expected reports from UPS and Pfizer helped to stoke the rally Tuesday.

Stocks had surged in the fourth quarter as the economy picked up speed and as the Federal Reserve pledged to continue pumping money into the financial system to underpin growth.

As 2011 began, some analysts warned that the market was ripe for a pullback. A modest sell-off did hit smaller stocks in mid-January but failed to halt the momentum in the market overall.

The Dow now is up 4% this year after rising 11% in 2010. The S&P 500 also is up 4% this year and the Nasdaq index is up 3.7%. . . .

Anthony Conroy, chief trader at brokerage BNY ConvergEx in New York, said the dollar’s continuing slide is luring foreign investors to U.S. stocks by making them less expensive when priced in stronger foreign currencies.

For overseas investors, “This is an extremely cheap place to put money,” Conroy said.

At the same time, turmoil in Egypt and other emerging markets is dulling the appeal of those markets for some global investors who have been buying heavily there over the last decade.

Edward Yardeni, head of investment research firm Yardeni Research in New York, said he was advising that “U.S. and European investors who have been focusing on a ‘go global’ theme should consider a ‘come home’ rebalancing of their portfolio” to reduce risk.

While U.S. and European stocks have rallied year to date, the Egyptian stock market is down 18%, India is off 12%, Indonesia is down 7%, Brazil is off 2% and China’s Shanghai composite stock index is flat.

-- Tom Petruno

Photo: On the New York Stock Exchange floor Tuesday. Credit: Richard Drew / Associated Press