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Can the Rally Keep Rolling?

[The S&P 500 is up 22% in the past two weeks.]

http://online.wsj.com/article/SB123780326256912947.html

›MARCH 24, 2009
By PETER A. MCKAY and GEOFFREY ROGOW

The rally sparked by the Treasury Department's new plan to remove toxic assets from banks' balance sheets sent stocks to their highest levels in more than a month, leaving questions about whether the gains can last.

The Dow Jones Industrial Average leapt 497.48 points, or 6.8%, to 7775.86, its highest close since Feb. 13 and the biggest percentage gain since last October. The Dow is up nearly 19% from its 12-year closing low just two weeks ago.

The S&P 500 soared 7.1% to 822.92, also its biggest percentage gain since October. The broad-market index is nearly 22% above its March 9 close, which some might consider a new bull market based on the traditional definition of a 20% gain from a low. Still, both measures remain more than 45% below their October 2007 records.

James D. Baer, managing member at the asset-management firm Uhlmann Price Securities, said Monday's rally seemed to push the market into "overbought" territory, meaning that it may be due for a short-term pullback.

Others were more optimistic. "There are still a lot of unknowns," said Bud Haslett, chief executive of Miller Tabak Capital Management, adding, however, "The market is going to have a positive bias going forward."

Treasury Department said a new public-private partnership could buy $1 trillion in soured assets from banks, which would allow them to renew lending. There also was encouraging housing data as the National Association of Realtors said sales of existing homes rose 5.1% in February, the largest gain since July 2003.

Financials led Monday's rally, continuing the trend of the past two weeks. The S&P's financial sector rose more than 16% Monday. The energy category was up 8.2% as oil rallied on hopes of a U.S. economic recovery.

All 30 Dow components finished ahead on Monday, as investors were warmed by emerging details on the government's plan to take bad assets off banks' hands. Better-than-expected news in home sales also buoyed the markets, Dave Kansas says.

Credit-derivatives indexes strengthened and some corporate and mortgage debt gained. Prices for Treasury bonds fell. Yields remained below levels before the Fed's announcement last week that it would buy $300 billion in Treasury securities.‹