Dow rebounds 112
on oil price decline

NEW YORK » Investors encouraged by falling oil prices bid stocks sharply higher yesterday as fears of a slowdown in consumer spending eased. The broad-based rally boosted the Dow Jones industrial average more than 112 points.

Though oil futures settled narrowly lower, a sharp drop in crude prices earlier in the day built on last week's losses, giving investors hope that gasoline prices would fall in time for the summer driving season and consumer spending would remain strong. After falling below $48 per barrel earlier in the session, a barrel of light crude settled at $48.61, down 6 cents, on the New York Mercantile Exchange.

The good news on oil helped investors shrug off the latest reading of the Empire State Index, a measurement of New York's manufacturing sector and a barometer for the rest of the nation. The index dropped sharply this month, showing contraction in the sector when economists had expected strong manufacturing growth instead.

"I would argue the stock market is probably about 5 percent undervalued, but you need a catalyst to get it going, to give investors confidence to buy stocks," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. "That catalyst is clearly the decline in the price of oil. That's causing investors to jump on values they see in this market."

The Dow rose 112.17, or 1.11 percent, to 10,252.29.

Broader stock indicators also climbed higher. The Standard & Poor's 500 index was up 11.64, or 1.01 percent, at 1,165.69, and the Nasdaq composite index gained 17.65, or 0.89 percent, to 1,994.43.

Bonds edged lower as stocks rose. The yield on the 10-year Treasury note rose to 4.13 percent from 4.12 percent late Friday. The dollar continued to firm up against other major currencies, while gold prices fell.

The drop in oil and other commodity prices sent investors looking for bargains in other sectors, including the long-dormant technology sector. And that has helped the Nasdaq, which has lagged behind the other major indexes, to gain ground.

"We're definitely seeing strength in the Nasdaq, in particular, and that's a healthy sign for the market," said Michael Sheldon, chief market strategist at Spencer Clarke LLC.

Merger and acquisition activity remained strong as corporate America continued to express optimism about the economy by pursuing deals. United Parcel Service Inc. added $1.03 to $73.18 after it announced an agreement to acquire smaller rival Overnite Corp. for $1.25 billion in cash -- a 46 percent premium on Overnite's closing price Friday.