U.S. Stocks Surge After Friday Rout Blue Chips Ge, Ibm, Intel Lead The Way To 100-Point Recovery

U.S. stocks surged Monday as investors took advantage of Friday’s tumble to buy shares of companies that have led the seven-year bull market, such as International Business Machines Corp., General Electric Co. and Intel Corp.

The Dow Jones Industrial Average rose 108.70 or 1.4 percent, to 7803.36, its biggest gain in four weeks. The rally restored almost half of Friday’s 247-point rout.

“This is not a bear market, just a correction, and large-cap stocks are now fairly valued,” said Tim Morris, chief investment officer at Bessemer Trust Co. in New York, which oversees $14 billion. “We still have low inflation and good earnings.”

For the first seven months of the year, inflation rose at a 1.5 percent rate, the slowest since 1986. Stocks are more attractive when inflation is low because lenders don’t demand high interest rates for loans to companies.

The Standard & Poor’s 500 Index rose 11.68 to 912.49, after falling 7.47 points. The Nasdaq Composite Index gained 7.49 to 1569.52, recovering from a 16.53-point loss.

Bonds rose for the first time in four days, helped by expectations that subdued inflation will let the Federal Reserve forego raising bank lending rates at its policy meeting today.

While many investors said they remain confident about the outlook for stocks over the term, one influential analyst said he sees ominous historical parallels. “My view is we’ve begun a topping process,” Byron Wien, U.S. investment strategist at Morgan Stanley, Dean Witter, Discover & Co., said in an interview on CNBC. “The market is at a juncture where enthusiasm has been carried almost to its ultimate extreme.”

“It’s very similar to the fall of 1987,” he said. “Remember, the market made a top on Aug. 25 of 1987, and then the market didn’t do much. It sort of drifted down” until the 22 percent drop in the Dow on Monday, Oct. 19.

The market may hover at these levels if interest rates hold steady, Wien said. “If interest rates rise into the fall, I think ultimately that will be the undoing of the stock market.”

Still, the economic conditions underpinning the 15-year bull market are still intact, investors said.

“Economic growth is still good, interest rates are low, and there’s no immediate danger of a Fed tightening,” said Kevin Logan, chief market economist at Dresdner Bank in New York. “The decline in the dollar is a concern, but that’s good for some companies’ profits.”