NEW YORK (CNNfn) - U.S. stocks rose for the fourth time in five sessions Tuesday after quarterly profits from many big-name companies fell less than Wall Street expected.
The Dow Jones industrial average rallied with help from Caterpillar. Shares of the heavy equipment maker gained as much as 8 percent when the company posted earnings that topped forecasts.
A late turnaround in Intel helped lift the Nasdaq composite index, and came after KLA Tencor, a maker of chip equipment, said its profit and sales will match targets. After the close of trading, Intel said its quarterly profit fell 76 percent to 12 cents a share, beating analysts' forecast.
Tuesday marked the busiest session to date for reports on the April-June quarter – a period when companies endured slumping demand, higher energy costs, and a strong dollar.
But for the market, the day's gains signal a belief that selling stocks, like investors have since early last year, could be more risky than buying them.
"Once the stocks do start to go (higher), a lot of people are going to feel like they missed the boat and be forced to scramble after some of these names," Mike Driscoll, equity trader with Credit Suisse First Boston, told CNNfn's Street Sweep. "And that's what begets rallies."
Drug stocks also rose, helped by Pfizer, which said its profit rose above forecasts.
Still, not everyone is convinced that the bad economic news is over. After more than 800 warnings for the last quarter, companies including Unisys, Hughes Electronics and Pinnacle Systems have already said profits in the current quarter will fall short. The weeks ahead will bring more such warnings.
"I think the profits bottom is way later in the year," Chris Wolfe, equity market strategist at J.P. Morgan Private Banking told CNNfn's The Money Gang.
Still, the Dow Jones industrial average rose 134.27 points, or 1.3 percent, to 10,606.39 Tuesday, narrowing its lose to 1.7 percent on the year.
The Nasdaq composite index added 38.20, or 1.9 percent, to 2,067.32 and is down 16 percent in 2001. A broader index, the S&P 500, rose 11.99 or 1 percent to 1,214.44, cutting its decline this year to 8 percent.
More stocks rose than fell. On the New York Stock Exchange, advancing issues topped declining ones 1,841 to 1,210 as 1.2 billion shares traded. Nasdaq winners topped losers 2,123 to 1,577 as 1.6 billion shares changed hands.
In other markets, Treasury securities dipped lower while the dollar fell against the euro and yen.
Crunching the numbers
The biggest winner among the Dow industrials, Caterpillar (CAT: up $3.18 to $53.55, Research, Estimates), said earnings fell to 78 cents a diluted share. That topped forecasts by a wide margin.
International Paper (IP: up $0.77 to $39.00, Research, Estimates) said its quarterly profit tumbled 83 percent. The results also came in ahead of expectations.
Similarly, Eastman Kodak (EK: up $1.33 to $46.03, Research, Estimates) topped forecasts with profit that fell to $1.12 a diluted share excluding special items.
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Drug makers also gained after the nation's biggest pharmaceutical company, Pfizer (PFE: up $0.71 to $38.58, Research, Estimates), said earnings rose to $1.89 billion, or 30 cents a diluted share. Merck (MRK: up $1.50 to $64.48, Research, Estimates) advanced, as did Johnson & Johnson (JNJ: up $1.18 to $54.91, Research, Estimates), which missed targets when it reported earnings that rose 16 percent to 51 cents per share.
Investors combing the day's quarterly reports for signs of an economic rebound generally liked what they found.
"The economically sensitive stocks are doing well," said Charles Payne, head analyst at Wall Street Strategies. "Historically, that's a sign that the economy is improving."
Payne said he was encouraged by the action in the market, which came back from earlier declines. But he warned that it's too soon to say that stocks are headed straight up.
"We've been burned many times before assuming that the worst is over," he said.
The near-term outlook still appears cloudy. Novellus Systems (NVLS: up $2.48 to $48.85, Research, Estimates), a leading supplier of chip equipment, said second-quarter profit came in slightly ahead of expectations. But the company's CEO signaled that the semiconductor market still is under pressure.
Unisys (UIS: down $0.22 to $12.93, Research, Estimates), the computer services company, warned that third- and fourth-quarter earnings will fall significantly short of Wall street forecasts.
Similarly, Pinnacle Systems (PCLE: down $0.94 to $4.55, Research, Estimates), which makes equipment to create digital video content, said it will lose money in its fourth quarter. Analysts expected a profit.
Still, some hope that stock prices, which have fallen this year, already reflect the worst news about slowing profits.
Earnings for the April-June period are expected to have fallen 18 percent, making it the worst quarter in a decade. But analysts anticipate rising profits next year, when year-to-year comparisons get easier.
"It never pays to be too bearish on the American economy for too long," James Awad, money manager at Awad Asset Management, told CNNfn's Before Hours.
One of the week's biggest reports came after the close of trading. No. 1 chipmaker Intel (INTC: up $0.77 to $29.90, Research, Estimates) reported a second-quarter profit of 12 cents per share, exceeding Wall Street's expectations on sales that fell 24 percent from the same period last year.
Earlier in the day, Paul Leming, who follows Intel for ABN Amro, cut his rating on the stock and lowered his earnings outlook for this year and next.
"We continue to believe that growth expectations for the semiconductor industry in general are too high, and multiples in this industry have to come down," Leming said.
But shares of Intel, down for most of the session, rose after KLA-Tencor Corp. (KLAC: up $2.54 to $49.20, Research, Estimates), at an analysts' conference, re-affirmed its June quarter revenue and profit guidance.
Greenspan ahead
In between all the profit numbers, on Wednesday, Federal Reserve Chairman Alan Greenspan testifies about the economy before the House Financial Services Committee. Greenspan likely will face questions from lawmakers whose constituents have suffered amid rising layoffs and sinking stocks. Investors, meanwhile, want clues about whether the Fed, which cut interest rates six times this year, will do so again next month.
"He needs to instill some confidence in the marketplace," Roy Blumberg, chief equity strategist at Sterne Agee & Leach, told CNNfn's Market Call.
The Fed chief's semiannual remarks to Congress often move markets. According the Steven Wood, economist at FinancialOxygen.com, the S&P 500 has moved by about 1 percent, on average, after Greenspan's remarks.
The markets appeared to ignore the latest read on the nation's manufacturing activity, which revealed more sluggishness. U.S. industrial production fell a greater-than-expected 0.7 percent in June, its ninth straight decline, the Federal Reserve reported. The Fed also said factories, mines and utilities ran at 77 percent of capacity in June, down from a revised 77.6 percent in May.
"Overall, another awful report," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. 
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