Dow up 35 as tech gains trump weak economy

Updated: 8:15 p.m. ET

Today's economic news was mediocre to just plain crummy, but the stock market still managed its third straight day of modest gains. The rally was built on gains in technology, energy and retail stocks. 

The stock market looks to get a boost on Friday from Google (GOOG) and Microsoft (MSFT), whose quarterly results cheered investors. Shares for both companies were higher after hours.

Google earned $10.10 a share, up 15% from a year ago and ahead of the Street estimate of $10.04 a share. Revenue was up 20.8% to $8.36 billion, a touch under the Wall Street estimate of $8.41 billion. The company does not issue guidance. Shares were up $17.19, or 2.9%, to $609.26 after hours. The regular close of $593.06 was up $12.30.

Microsoft, the publisher of MSN Money, earned 73 cents a share, excluding a $6.19 billion non-cash charge for writing off nearly all of its investment in aQuantive, an online advertising business. Including the write-off, Microsoft lost 6 cents a share, its first quarterly loss as a public company. The aQuantive write-off reduced earnings under generally accepted accounting by 73 cents a share. Revenue was up 4% to a record $18.06 billion. For the fiscal year, revenue was a record $73.7 billion. Microsoft was up 75 cents, or 2.5% to $31.42 after hours. Shares closed up 22 cents to $30.67 in regular trading.

The Dow Jones industrials ($INDU) closed up 35 points to 12,943. The close was the best for the blue chips since July 3, with the index trading at levels last seen in early May. The Standard & Poor's 500 Index ($INX) added 4 points to 1,377, its best close since May 3. The Nasdaq Composite Index ($COMPX) climbed 23 points to 2,966, its best close since July 5.

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The Nasdaq-100 Index ($NDX), dominated by Apple (AAPL), was up 30 points to 2,656. Apple was up $8.06 to $614.32. 

Energy shares moved up as crude oil (-CL) jumped more 3% in part because of worries that Syria's civil war may escalate Middle East tensions. 

At the same time, reports on jobless claims, June existing-home sales, leading economic indicators and manufacturing in the Philadelphia region were weaker than expected. The existing-home sales report was dismaying enough that Goldman Sachs cut its estimate for second-quarter growth from 1.2% to 1.1%.

Meanwhile, the spot price of corn (-ZC) briefly hit a record $8.1875 a bushel today as the summer drought continued to damage the current crop. Spot corn ended at $8.0775 a bushel. Corn for December delivery is up nearly 24% this month alone, and wheat is up 22%, as the nation's midsection suffers from the worst drought since the 1950s.

Crude oil settled up $2.79 to $92.66 a  barrel. Gold settled up $9.60 to $1,586.10 an ounce.

Interest rates were up slightly, with the 10-year Treasury yield at 1.515%, up from Thursday's 1.479%. The dollar was lower against major currencies.

The market got a brief boost when German lawmakers approved the latest European rescue, a $122 billion package of loans from the eurozone bailout fund to prop up Spanish banks on the verge of collapsing under the weight of soured property loans. The vote came after Spanish bond yields jumped as traders worried the country won't be able to find enough buyers for the debt it needs to sell.

Friday brings earnings from General Electric (GE), Manpower (MAN), Schlumberger (SLB) and Baker Hughes (BHI). Futures trading suggests stocks will open slightly lower.

Google's core business fuel profit
Google's second-quarter profit grew 11%, aided by continued growth in its core Internet search business, but advertiser payments per click kept falling.

The quarter was the company's first after it closed a $12.5 billion deal for Motorola Mobility Holdings in May. The new unit brought in $1.25 billion in revenue -- about 10% of Google's total -- with $843 million from the mobile segment and $407 million from the home segment.

Motorola's operating loss was $233 million, however, dragging down Google's operating margin to 26.2%. Without Motorola's negative 18.6% operating margin, Google's margin would have been 31.3%.

Microsoft expects big business in the fall
Microsoft's results were driven by strength in its Windows, servers & tools and Microsoft Business Division. The trio generated 85% of consolidated revenue and most of the operating profit.

The Windows division's revenue was down 12.6% from a year ago in part because customers are waiting for the availability of Windows 8 in October. Microsoft deferred $540 million in revenue from a $14.99 upgrade for Windows 8.

Had the deferral not occurred, Windows revenue was up 1%. That reflects the difficulties facing personal computer makers as many users embrace tablet devices.

The writedown for the aQuantive investment resulted in Microsoft's Online business reporting a $6.7 billion operating loss. Excluding the writedown, the loss was $266 million, down 64% from $745 million a year ago. Revenue for the online business was up 8% to $735 million.

In addition to the Windows 8 launch, Microsoft will launch new versions of Windows Server, Windows Phone and upgrades to Office that will include integration with Skype, as well as Microsoft’s recent acquisition of professional social-networking company Yammer.

Chipotle pays for missing Street estimates
All was not bullish after hours.

Shares of Chipotle Mexican Grill (CMG  were down $42.86 to $363.64, or 10.6%, after finishing up $5.80 to $403.86. The restaurant chain earned $2.56 a share, up 61% from a year ago. But while revenue of $690.9 million was up 20.9%, revenue missed the Street estimate by $16 million.

Same-store sales were up 8% from a year ago; analysts had expected 10% growth. The company sees mid-single-digit earnings growth for the rest of the year.

IBM boosts tech stocks; financials are weak
IBM (IBM), eBay (EBAY) and Qualcomm (QCOM) were among the big tech leaders. Their gains were offset by declines in Wal-Mart Stores (WMT) and financial stocks, especially Morgan Stanley (MS), Bank of America (BAC) and American Express (AXP).

IBM was up $7.09 to $195.34, contributing nearly 54 points to the Dow by itself. Declines in Bank of America, American Express and Verizon Communications (VZ) subtracted 36 points from the Dow.

Walgreen (WAG), up $3.65 to $34.62, was the top S&P 500 performer after signing a new agreement to fill prescriptions from customers in the Express Scripts (ESRX) network. Express Scripts jumped $1.07 to $58.76.

Also moving higher after reporting strong or record earnings: Union Pacific (UNP) and Freeport-McMoRan Copper & Gold (FCX). Materials stocks were the market leaders today.

Energy prices -- New York close
			Thur.			Wed.			Month chg.			YTD chg.
Crude oil (-CL)			$92.66			$89.87			9.06%			-6.24%
(per barrel)
Heating oil (-HO)			$2.9470			$2.8776			8.75%			1.13%
(per gallon)
Natural gas (-NG)			$2.9990			$2.9730			6.20%			0.33%
(per mil. BTU)
Unleaded gasoline (-RB)			$2.9389			$2.8834			11.67%			10.59%
(per gallon)
Brent crude			$107.80			$105.16			10.22%			0.39%
(per barrel)
Retail gasoline			$3.4370			$3.4260			2.51%			4.91%
(per gallon; AAA)

Economic reports offer snapshot of sputtering economy
The Philadelphia Federal Reserve said its business activity index was minus-12.9 from minus-6.6 in June. A reading below zero indicates contraction in the region's manufacturing.

"There is underlying softness in manufacturing. It probably understates the broader activity throughout the nation, but it still goes to show you that the weak trends are persisting,"  Sean Incremona, an economist at 4CAST, told Reuters.

The Labor Department said initial claims for state unemployment benefits rebounded 34,000 to a seasonally adjusted 386,000. A seasonal quirk -- caused when automakers didn't shut down for annual  retooling -- caused claims to drop 24,000 in the prior week.

The four-week moving average for new claims, a better measure of labor market trends, fell 1,500 to 375,500 -- staying in the middle of the range it has held for much of 2012.

Existing-home sales dropped 5.4% to an annual rate of 4.37 million units last month, the National Association of Realtors said in a third report. However, the median sales price rose from last year, and there were fewer sales of distressed properties.

IBM rises on bullish guidance; Morgan Stanley slumps
IBM beat Street estimates for second-quarter results and boosted its full-year guidance. Its decadelong shift to higher-margin software sales helped the company overcome a slowdown in technology spending last quarter. IBM aims to get half of its earnings from software by 2015 -- a move away from less-profitable hardware and services.

EBay soared $3.49 to $43.95. CEO John Donahoe has increased spending on advertising and new technology to expand beyond EBay’s auction roots and let shoppers buy more items in instant sales, similar to those on Amazon.com's (AMZN) site. Those efforts led to gains in EBay’s Marketplaces unit as total U.S. online sales jumped 15% in the quarter, according to market-research firm ComScore.

Qualcomm increased $2.39 to $58.44. The largest seller of mobile-phone semiconductors gained after quarterly results showed consumers in emerging markets are trading up to next-generation handsets, lifting profitability.

Morgan Stanley (MS) slumped 74 cents to $13.25. CEO James Gorman is trying to show improvements in profitability amid a slowdown in the investment-banking and trading businesses that account for half the firm’s revenue.

Verizon, the second-largest U.S. phone company, fell $1.35 to $44.54. Second-quarter net income attributable to Verizon rose to $4.29 billion, or 64 cents a share, from $3.6 billion, or 57 cents, a year earlier. That matched the average estimate of analysts, according to data compiled by Bloomberg.

Sherwin-Williams (SHW) shares were up $4.78 to $132.43. The world's second-largest paint maker raised its guidance for the third quarter and the year, but the stock fell as much as 4% early in the session on worries that higher costs could trim the rosy outlook. The worries stemmed from a warning from AkzoNobel, the world's top paint maker, that costs for titanium dioxide, a key ingredient, and resins could be rising.

Short hits from the markets -- New York close
			Thur.			Wed.			Month chg.			YTD chg.
Treasury yields
13-week Treasury bill			0.0800%			0.090%			0.00%			700.00%
5-year Treasury note			0.615%			0.594%			-15.64%			-25.90%
10-year Treasury note			1.515%			1.479%			-8.68%			-19.03%
30-year Treasury bond			2.614%			2.580%			-5.39%			-9.52%
Currencies
U.S. Dollar Index			82.98			83.196			1.50%			3.05%
British pound			1.5713			1.5662			0.06%			1.13%
(in U.S. $)
U.S. $ in pounds			£0.636			£0.639			-0.06%			-1.12%
Euro in dollars			$1.22			$1.23			-2.98%			-5.47%
(in U.S. $)
U.S. $ in euros			€ 0.816			€ 0.814			3.07%			5.79%
U.S. $ in yen			78.74			78.81			-1.26%			2.13%
U.S. $ in Chinese			6.39			6.37			0.35%			1.09%
yuan
Canada dollar			$0.992			$0.990			1.01%			1.15%
(in U.S. $)
U.S. dollar			$1.008			$1.010			-0.99%			-1.14%
(in Canadian $)
Commodities
Gold (-GC)			$1,580.40			$1,570.80			-1.48%			0.87%
(per troy ounce)
Copper (-HG)			$3.535			$3.474			1.09%			2.87%
(per pound)
Silver (-SI)			$27.2170			$27.0950			-1.43%			-2.50%
(per troy ounce)
Wheat (-ZW)			$9.3500			$9.0325			23.47%			43.24%
(per bushel)
Corn (-ZC)			$7.7850			$7.843			22.65%			20.42%
(per bushel)
Cotton			$0.7263			0.7193			1.82%			-20.78%
(per pound)
Coffee			$1.8895			1.8215			10.69%			-17.72%
(per pound)
Crude oil (-CL)			$92.66			$89.87			9.06%			-6.24%
(per barrel)