Stocks Surge as Investors Bet on Corporate Profits

The stock market got a big lift from a faraway place: Australia.

Traders Paul Lawless, left, and Stephen Guilfoyle, right, work on the floor of the New York Stock Exchange Tuesday, Oct. 6, 2009. (AP Photo/Richard Drew))

(AP)

The Dow Jones industrial average jumped 132 points Tuesday and all major indicators rose more than 1 percent as the Australian central bank's decision to raise interest rates boosted investor optimism about the global economy. The Dow is up 244 points in two days, its best back-to-back gain since mid-July.

Investors' show of confidence ahead of a flood of corporate earnings reports came as Australia became the first major country to raise interest rates since the onset of the financial crisis last year. The move signals that policymakers see the country's economy as strong enough to withstand higher borrowing costs. That touched off hopes that other economies might also be growing.

Australia's decision also dented demand for the U.S. dollar, which, in turn, raised commodities prices. U.S. energy and materials stocks jumped as oil rose and gold reached a record high.

Investors' upbeat tone is a departure from the past two weeks, when disappointing reports on unemployment, manufacturing and consumer sentiment gave stocks their first consecutive weekly drops since July. Investors now seem inclined to grab hold of any good news, and their shifting sentiment has led to some mild volatility including the surge upward this week.

The market's climb also came as some investors ratcheted up expectations for companies' earnings for the July-September quarter. Yum Brands Inc., parent of the Taco Bell, KFC and Pizza Hut chains, reported results after the closing bell that topped expectations and raised its profit forecast for the year. Aluminum producer Alcoa Inc. reports on Wednesday.

Phil Orlando, chief equity market strategist at Federated Investors in New York, said investors are raising their expectations for earnings because few companies have issued profit warnings since the quarter's end.

"We've gone through confessional season and we haven't had a peep from anyone," he said, referring to companies that would try to prepare investors for disappointment. "It's just crickets and tumbleweed throughout Wall Street because companies are going to beat."