U.S. MARKET AVERAGES

A new batch of strong earnings reports, including results from Microsoft and Procter & Gamble, sent Dow Jones and Nasdaq higher for a second straight session. The positive sentiment generated by the earnings news was little affected by the Commerce Department report which showed that the U.S. economy grew much less than expected in the fourth quarter. The economy grew at only a 1.1% annual in the fourth quarter of last year, the slowest pace in three years. Bonds sold off in the mid-morning as the better-than-expected new home sales data were released, bringing yields back near the unchanged mark.

The advance in U.S. markets followed a resurgence in Japanese stocks. On Friday the Nikkei hit a five-year high, recovering from last-week heavy losses as investors responded to upbeat earnings from Sony and other companies.

Microsoft (MSFT: chart) said its quarterly profit rose almost 6% as revenue climbed more than 9%, helped by its video-game unit and by strong demand for software used to run personal computers and corporate servers.

Procter & Gamble (PG: chart) released Q2 earnings rise of 29% with the profit growth partly attributable to the acquisition of razor and battery maker Gillette.
The company raised its full-year guidance to $2.58 to $2.62 per share from its previous forecast of $2.54 to $2.60 per share.

The housing sector advanced 1.6%, receiving a boost from the stronger-than-expected new home sales data. The HMO group also gained during the morning as well with CIGNA (CI: chart) standing out as the best performer, climbing by about 4.3%.

The airline and disk drive sectors stoog out as the worst performers on the day. Despite the 2.4% decline in the airline sector, the Dow Jones Transportation sector improved through the morning to settle just below the flat line. Defense stocks also moved to the downside, posting a modest loss.

Broadcom (BRCM: chart) set a new 52-week high, climbing nearly 20% on strong quarterly results. Halliburton (HAL: chart) also jumped to a fresh peak, boosted by earnings news and reports that it expects to file for an IPO of KBR.

Boston Scientific (BSX: chart) dropped to a new 52-week low, falling more than 6% after revealing a warning letter from the FDA. Affymetrix (AFFX: chart) dropped more than 7% on earnings and guidance to set a fresh low.

In midday trading on Wall Street, the Dow rose 113.90, or 1.05%. The Standard & Poor's 500 index added 11.03, or 0.87%, and the Nasdaq composite index climbed 25.13, or 1.1%.

Bonds were volatile as investors digested the economic news, with the yield on the 10-year Treasury note steady at 4.51% from late Thursday.

MOVERS AND SHAKERS

Bebe Stores (BEBE: chart), clothing retailer, posted Q2 profit of $25 million, or 27 cents a share, compared with $24.3 million, or 26 cents a share, during the year-earlier period, beating estimates of earnings of 26 cents a share. The company reported quarterly revenue of $167.9 million, compared with $152.6 million a year ago, below expectations of revenue of $170 million. The stock gained 16.6%.

Broadcom (BRCM: chart), chipmaker, said that fourth-quarter profit more than doubled on 52% sales growth of its wireless chips used in consumer electronic devices and high-speed Internet networking gear. The company reported Q4 net income of $194.8 million, or 50 cents a share, up from $71.1 million, or 20 cents a share a year earlier. It also authorized an additional share repurchase program worth $500 million. The stock surged 20%.

Take-Two Interactive Software (TTWO: chart) was downgraded at Banc of America to sell from hold, with the broker citing numerous risks for the company, including lower earnings and over-valuation, as well as potential SEC investigations and accounting restatements. The firm also lowered its price target to $12 from $17. The company’s shares dropped 17.6%.

SanDisk (SNDK: chart), flash-memory developer, reported a Q4 profit that rose 72% from a year ago on increased demand for its digital media players resulted in higher sales of its flash-memory chip products. The company earned $134 million, or 68 cents a share, on $751 million in revenue, compared with a net income of $78 million, or 42 cents a share, on $549 million in revenue a year ago. The results exceeded analyst estimates of 62 cents a share, on revenue of $727 million. The company’s shares fell 10.7%.

ECONOMIC NEWS

The Department of Commerce released is report on new home sales in the month of December on Friday, showing that sales rose more than economist had expected after falling rather sharply in the previous month. With the increase, sales for the full year reached a record high.

The report showed that new home sales rose 2.9 percent to a seasonally adjusted annual rate of 1.269 million units in December from a revised rate of 1.233 million units in November. Economists had expected new home sales to rebound to a 1.250 million unit rate from the 1.245 million unit rate originally reported for November.