Telecoms, Financials Rebound; Dow Up 201

U.S. stocks wrapped up their first losing month since September with a robust rally Monday as investors bought beaten-down telecom and financial shares.

The Standard & Poor’s 500 index advanced 34.30 points, or 2.5%, to 1,394.46, its best gain in three weeks. The Dow Jones industrial average rose 201.66 points, or 1.9%, to 10,940.53.

Nasdaq recovered from a 139-point swoon to finish up 53.28 points, or 1.4%, at 3,940.35.

Investors are betting that even though the Federal Reserve is likely to raise interest rates this week, “earnings growth still looks pretty good and the market should be OK,� said analyst Mark Tincher of Mitchell Hutchins Asset Management.

A total of 326 companies in the S&P; 500 have reported earnings for the fourth quarter, with 67% beating analysts’ forecasts and 12% falling below expectations, according to First Call/Thomson Financial. (The rest matched expectations.) Analysts expect total average profit growth of 21.3% over the year-ago quarter, slightly above the 21.1% average among the S&P; 500 companies that have reported so far.

Nasdaq began its turnaround in the afternoon Monday amid a “short squeeze,� in which traders who bet on short-term declines in stocks by selling borrowed shares were forced to buy back the shares when it became clear that they weren’t going to tumble further, said Joseph Keating of the Kent Funds in Grand Rapids, Mich.

The Nasdaq index had plunged 8.2% last week, including a 3.8% drop on Friday, on worries about interest rates.

Despite Monday’s rebound in major indexes, losers still outnumbered winners in the stock market overall.

That may have reflected another rise in bond yields ahead of the Fed’s meeting today and Wednesday. The 30-year Treasury bond yield climbed to 6.49% from 6.45% on Friday. The two-year T-note yield rose to 6.61% from 6.56% on Friday.

Shorter-term yields haven’t been this high since 1995.

In currency trading, the dollar reached a new high against the euro and a 3 1/2-month peak against the Japanese yen. The reeling euro dropped to 97 cents from 97.8 cents Friday. With no support for the currency from the European Central Bank, traders are thinking, “Let’s see how far down we can take it before they react,� said Alex Ignarra, analyst at Fortis Financial Markets.

Among the market highlights:

* Telephone stocks rallied strongly, sending the S&P; telephone index up 8%. Among regional phone stocks, SBC Communications rose $3.63 to $42.88, BellSouth gained $3.19 to $46.63 and Bell Atlantic advanced $4.31 to $61.94.

Among long-distance companies, AT&T; increased $3.88 to $52.75, MCI WorldCom rose $4.31 to $45.94 and Sprint surged $4.38 to $64.63.

* Slumping wireless giant Qualcomm soared $16.44 to $127 after it said it is “very close� to an agreement with China United Telecommunications that could lead to the widespread use of its products in China.

* Financial shares, which are normally hurt by higher interest rates, gained in part because they’ve lagged behind the rest of the market for most of the last year and some analysts smell value. American Express advanced $6.50 to $164.75, J.P. Morgan climbed $4.88 to $122.94 and Goldman Sachs rallied $4.63 to $91.63.

* Intel climbed $4.94 to $98.94 after Credit Suisse First Boston recommended the shares, setting a $150 price target.

* Hershey Foods jumped $4.75 to $42.50 after reported earnings that beat analysts’ lowered expectations.

Market Roundup, C12