Stocks extend rally as worries over CIT ease

The stock market is extending a big rally from last week on more upbeat earnings and word that troubled lender CIT will avoid bankruptcy.

The advance pushed the Dow Jones industrials back into the black for the year and the Standard & Poor's 500 index to its highest finish since November.

News that CIT Group struck a deal with its bondholders helped stoke the market's optimism, which got a big boost last week from a string of good earnings news.

The Dow was up 104.21, or 1.2%, to 8,848.15, surpassing a high of 8,799 hit in June. The S&P 500 index rose 10.75, or 1.1%, to 951.13, edging out its high in June of 946.21. The Nasdaq composite index rose 22.68, or 1.2%, to 1,909.29. The Dow and the S&P 500 are coming off their best weekly performance since a spring rally began in March.

CIT's future was cast in doubt after negotiations with federal regulators for bailout funds fell through. Its failure would have been a blow to investor confidence and would have hurt industries like retailing, which has suppliers who rely on CIT for financing.

A bigger-than-expected rise in a predictor of future economic activity also supported stocks. The Conference Board's index of leading economic indicators rose 0.7% in June, more than the 0.4% forecast. It was the third straight month of increases.

Market indicators jumped about 7% last week. The huge advance came after a month-long slide in stocks driven by reports showing the economy was not healing as quickly as hoped. Solid earnings and outlooks from companies like Goldman SachsGS, IntelINTC and IBMIBM gave investors hope that the worst of the recession could be past.

"The main reason the market has been fairly strong is we haven't had any major disappointments in earnings," said Joe Keetle, senior wealth manager at Dawson Wealth Management.

Among the earnings news, toy maker Hasbro's profit rose 5%, beating expectations, as strong U.S. revenue offset international sales hurt by the stronger dollar. The stock(has) gained 4%, rising $1.07 to $26.45.

Oilfield services company Halliburton said its profit tumbled 48% amid sluggish exploration and production activity, but the results were better than analyst forecasts and its shares (hal) rose 95 cents, or 4.4%, to $22.33.

Auto parts and building products maker Johnson Controls' fiscal third-quarter earnings dropped 63% but also exceeded expectations. Shares (jci) rose 7.3%, or $1.56, to $23.08.

With the bulk of earnings reports still to come, the market has yet to hear from some key industries including retailing. If those results are disappointing, it could force investors to rethink their most recent rally. Several factors are still hanging over the market including record-high unemployment and a damaged housing market.

On Monday, though, the CIT news and optimism over better earnings reports stoked investors' appetite for risk. Investors moved out of safe-haven assets like U.S. Treasurys and the dollar, and into riskier bets like commodities. CIT shares surged 81%, adding 57 cents to $1.27.

But some analysts said the market could have a hard time advancing, even with more welcome news.

"The market itself has hit kind of a top here temporarily. People are already getting used to the earnings," said Matt Lloyd, chief investment strategist at Advisors Asset Management.

Oil prices rose 42 cents to $63.98 a barrel. Gold rose, while the dollar was mixed.

Bond prices rose, pushing yields lower. The yield on the benchmark 10-year Treasury note fell to 3.64% from 3.66% late Friday.

Advancing stocks outnumbered decliners by about 3-to-1 on the New York Stock Exchange, where volume came to 614.7 million shares compared with 798.8 million traded at the same point Friday.

The Russell 2000 index of smaller companies rose 7.74, or 1.5%, to 526.96.

Overseas, Britain's FTSE 100 rose 1.3%, Germany's DAX index rose 1%, and France's CAC-40 gained 1.6%. Japanese financial markets were closed for a holiday.