Wall Street rallies after upbeat earnings

NEW YORK — Stocks rose sharply Tuesday after earnings reports from Alcoa and CSX reassured investors about the pace of the economic recovery.

Investors reacted warmly Tuesday to better-than-expected profits from aluminum maker Alcoa Inc. and railroad operator CSX Corp. The Dow Jones industrial average rose more than 130 points.

The companies, among the first to report second-quarter earnings, also issued upbeat forecasts for the rest of the year. That was heartening news for investors who have been concerned that the recovery was stalling, or that the economy might even fall back into recession.

Alcoa's earnings reports are closely watched because its varied customer base provides a snapshot of a broad range of other industries. It is also a Dow component. CSX also provides insight into economic activity because it ships a wide range of products.

Alcoa said global consumption of aluminum will grow this year by more than it had forecast just three months ago. There have been concerns that the global economic recovery will end as many European nations face mounting government debt problems and high unemployment slows growth in the U.S.

CSX, meanwhile, said it sees its the economy's upward momentum continuing this year.

Frank Ingarra, co-portfolio manager of Hennessy Funds in Stamford, Conn., said Alcoa and CSX's results lifted the market because they hit on the two themes that traders are looking for in earnings: revenue growth and optimistic outlooks.

"That's why the earnings were so good," Ingarra said. "You saw that top-line growth and good guidance."

During the recession, companies that made money often did so by cutting costs rather than bringing in sales. So sales growth is a sign that business is indeed picking up.

The Commerce Department reported Tuesday that the U.S. trade deficit increased to its widest level in 18 months as an increase in exports was outpaced by rising imports. A jump in both imports and exports is a sign that the economy is growing.

Earnings will likely continue to dictate trading over the next few weeks as hundreds of companies release results. Chipmaker Intel Corp. reports earnings after the close Tuesday. It is considered a good gauge of the health of the economy since its sales are driven by consumers and businesses buying computers. Retail sales have remained sluggish in recent months amid high unemployment.

European markets rose following the earnings reports from Alcoa and CSX, which were released after markets closed Monday. European investors brushed off a credit rating downgrade to Portugal's debt to send stocks higher.

The Dow rose 131.65, or 1.3 percent, to 10,347.92. The Standard & Poor's 500 index rose 12.85, or 1.2 percent, to 1,091.60, while the Nasdaq composite index rose 23.87, or 1.1 percent, to 2,222.23.

Alcoa shares rose 13 cents to $11.00. CSX dipped 51 cents to $51.95 after rising earlier in the day. Intel shares rose 39 cents to $20.96.

One company whose shares struggled despite the broad gains Tuesday was Apple Inc. They dropped $10.24, or 4 percent, to $247.05 a day after Consumer Reports said it would not recommend buying the company's new iPhone because of its antenna design.

More than seven stocks rose for every one that fell on the New York Stock Exchange. Volume came to 228.2 million shares compared with 184.5 million shares traded at the same time Monday.

The Dow has risen for five straight sessions. Last week was the best week for the Dow since July 2009. It followed those gains with a modest climb of 18 points Monday.

If the Dow closes higher again Tuesday, it would be the first six-day winning streak since a stretch in late April that sent the index to its highest level of the year. The Dow remains nearly 9 percent below that April high despite the recent gains.

Stocks had sold off in May and June because of worries that the economy was slowing. Tim Courtney, chief investment officer at Burns Advisory Group in Oklahoma City, investors were selling as they tried to predict how much a slowdown in the economy would affect earnings. However, Courtney said, the sell-off went too far, which has helped the market in recent days.

"Generally the market overreacts," he said.

Although investors are moving into stocks, bond prices dipped Tuesday. Losses were modest, in part, because the government is set to auction off 10-year Treasury notes later in the day. Moves are often muted before big auctions.

The yield on the 10-year note rose to 3.08 percent from 3.07 percent late Monday. Its yield is often used as to set interest rates on consumer loans and mortgages, so investors will closely watch the auction later Tuesday to see what yield investors in the freshly auctioned bonds received.

The Russell 2000 index of smaller companies rose 10.80, or 1.7 percent, to 632.41.

Overseas, Britain's FTSE 100 rose 1.9 percent, Germany's DAX index gained 1.9 percent, and France's CAC-40 rose 1.7 percent. Japan's Nikkei stock average fell 0.1 percent.