US STOCKS-Market up on oil; earnings optimism fizzles late
* Google, Microsoft, Merrill disappoint after the bell
* JPMorgan spurs 2nd-day rally in financials
* Oil drops over $5, easing inflation worry (Adds after-hours declines of Google, Microsoft, Merrill)
NEW YORK, July 17 (Reuters) - U.S. stocks soared on Thursday on a sharp drop in oil and several unexpectedly strong earnings reports, but the rally may not hold into Friday, given disappointing results from Google, Microsoft and Merrill Lynch after the bell.
Oil prices fell more than $5, dropping below $130 a barrel for the first time in over a month. The steep decline in oil eased some concerns about the threat of inflation on an already fragile U.S. economy.
Shares of JPMorgan (JPM.N) jumped 13.5 percent in the regular session after the third-largest U.S. bank's profit fell less than expected on resilient stock and bond underwriting revenue. Bank of America Corp (BAC.N) rose nearly 17 percent and Citigroup (C.N) gained over 9 percent.
But in extended trading, Merrill Lynch MER.N shares fell 4 percent to $29.50 after the investment bank posted a much bigger-than-expected quarterly loss.
The disappointment was even bigger in the technology sector, with Google (GOOG.O) and Microsoft (MSFT.O) both missing Wall Street's estimates. S&P 500 and Nasdaq futures fell, pointing to a lower open on Friday.
"For the last two days, we've had some good reports and the market had been starved for some good news, especially from the finance sector," said Keith Wirtz, chief investment officer at Fifth Third Asset Management, in Cincinnati, Ohio.
He added that this positive sentiment in the regular session was overshadowed by the weaker-than-expected results from Google, which set "a negative tone in the aftermarket."
The Dow Jones industrial average .DJI surged 207.38 points, or 1.85 percent, to 11,446.66, in its largest two-day percentage gain since Oct. 15, 2002, when it had a two-day gain of 5.2 percent. The Standard & Poor's 500 Index .SPX rose 14.96 points, or 1.20 percent, to 1,260.32. The Nasdaq Composite Index .IXIC climbed 27.45 points, or 1.20 percent, to 2,312.30.
GOOGLE, MICROSOFT DROP LATE
Even IBM, which posted stronger-than-expected results, was unable to hold on to gains in after-hours trading, given the negative sentiment about the sector. Shares of International Business Machines (IBM.N) fell 1.2 percent to $125 in extended trade. IBM had closed at $126.52, up 0.5 percent.
Google shares fell about 9 percent after the bell to $485.53, while Microsoft shares declined about 4 percent to $26.50.
FANNIE AND FREDDIE FLY, eBAY FALLS
That sharply contrasted with the positive tone in the regular session, when shares of Fannie Mae (FNM.N) and Freddie Mac (FRE.N) soared about 20 percent or more in a second day of sharp gains. They were further boosted by news that Freddie pulled off its second successful debt sale following Sunday's announcement of a U.S. rescue plan for the two huge housing finance companies. Fannie Mae's stock ended at $10.93, up 18.2 percent, while Freddie Mac closed at $8.33, up 22 percent.
United Technologies (UTX.N) was among the companies posting stronger-than-expected quarterly results. Shares of the diversified manufacturer rose 5.9 percent to $64.70 on the results.
Shares of Huntington Bancshares Inc (HBAN.O) soared 40.3 percent to $7.98 on the Nasdaq after the Midwestern regional bank posted second-quarter results.
BlackRock Inc. (BLK.N) jumped 16.4 percent to $208.26 on the NYSE as the biggest publicly traded U.S. asset manager pleased investors with higher-than-expected profit and optimistic prospects for the coming months.
Coca-Cola (KO.N) and eBay (EBAY.O) also beat analysts' profit estimates. But shares of Coca-Cola, the world's largest soft-drinks company, fell 3.8 percent to $50.34 on the NYSE on mounting evidence that the weakening U.S. economy is taking a toll on its performance. [ID:nN17256203]
Shares of eBay slipped 13.9 percent to $24.20 on the Nasdaq after the Internet auctioneer issued a cautious near-term outlook that led to downgrades by several Wall Street analysts.
Analysts currently expect S&P 500 company earnings to decline 16.1 percent, according to Thomson Reuters proprietary research released on Thursday. Financial companies' earnings are seen falling 76 percent.
Trading volume was strong on the New York Stock Exchange, with about 1.96 billion shares changing hands, above last year's estimated daily average of roughly 1.90 billion. On Nasdaq, about 2.66 billion shares traded, above last year's daily average of 2.17 billion.
Advancing stocks outnumbered declining ones by about 3 to 1 on the NYSE and by 2 to 1 on the Nasdaq. (Editing by Jan Paschal)
