Stocks gain for 3rd day on Cisco

By Caroline Valetkevitch

NEW YORK (Reuters) - Stocks rose for a third session on Wednesday, a day after the Federal Reserve reassured investors about the economy and technology bellwether Cisco Systems Inc. (CSCO.O) raised its revenue outlook.

The Nasdaq composite index .IXIC rose 2 percent, led by Cisco, the world's largest maker of computer networking equipment. This pushed the Nasdaq up 4 percent for the week so far -- its best three-day percentage gain in a year.

Financial companies and home builders, which have been pummeled in recent weeks as the housing market faltered, shone as investors took comfort in the Fed's view that the economy was likely to keep growing despite turmoil in credit markets.

Shares of home builders, hurt by the housing sector's slowdown, jumped after luxury builder Toll Brothers Inc. (TOL.N) reported sales that exceeded analysts' forecasts when it released preliminary results on Wednesday. A Dow Jones index of home builders' shares .DJUSHB surged 6.6 percent.

The volatility that has marked recent sessions resurfaced in the last hour of trading and the Dow industrials briefly turned negative on a rumor that Goldman Sachs (GS.N) would make an announcement after the closing bell. Goldman denied that any announcement was pending.

"It's a casino atmosphere dominated by short-term traders, both long and short, responding to the tape and assorted rumors against the background of high anxiety," said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York.

The Dow Jones industrial average .DJI shot up 153.56 points, or 1.14 percent, to end at 13,657.86. During the session, the Dow swung 211.03 points from its session low at 13,484.79 to its session high at 13,695.82.

The Standard & Poor's 500 Index .SPX jumped 20.78 points, or 1.41 percent, to finish at 1,497.49, after hitting a session high at 1,503.89. The Nasdaq Composite Index .IXIC climbed 51.38 points, or 2.01 percent, to close at 2,612.98.

The Nasdaq had its biggest one-day percentage advance in 10 months.

"I think today's market reflects a subsidence of anxiety ... We've got to face up to the problem of subprime spreading to the whole housing sector and its impact on consumer confidence, but it does not look like the whole system is going to collapse, and I think that was the message of the Fed," Metz said.

Shares of Cisco gained 6.7 percent to end at $31.68 after hitting $32.25, the highest level since early 2001. Late Tuesday, the company raised its revenue target and reported earnings that exceeded analysts' expectations. Cisco also was among the stocks giving the biggest lift to the Standard & Poor's 500 index .SPX.

AMERICAN EXPRESS AND AIG CLIMB

The Fed said on Tuesday that turmoil from the housing slump was squeezing credit for some, but it nevertheless believed the economy remained reasonably intact.

Among financials contributing to the market's gains were shares of Citigroup Inc. (C.N), up 1.9 percent at $49.49, and American Express Co (AXP.N), up 4.2 percent at $62.96, both in New York Stock Exchange trading. American Express was the Dow's top gainer.

The S&P financial index .GSPF was up 2.2 percent, although for the year so far, the index was off more than 5 percent.