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Posted: Monday, July 7, 2003 10:32 am

NEW YORK - A burst of optimism about second-quarter earnings propelled stocks sharply higher Monday, lifting the Dow Jones industrials more than 140 points. The Nasdaq composite index shot above 1,700 for the first time in 14 months.

A report that Microsoft might pay a special dividend and a survey from Goldman Sachs predicting a turnaround in tech spending contributed to the market’s gains.

Analysts say investors are upbeat about second-quarter earnings, which companies start releasing this week, and are eager to buy stocks before a full-fledged rally gets under way.

“Market psychology has so much to do with where the market goes. All of a sudden people feel good again and they want to come to the stock market,’’ said Michael Murphy, head trader at Wachovia Securities in Baltimore.

After barreling up as much as 190.91, the Dow closed up 146.58, or 1.6 percent, at 9,216.79, according to preliminary calculations. Last week, the Dow gained 0.9 percent last week despite a 72.63-point loss on Thursday. The market was closed Friday for Independence Day.

The broader market also surged higher. The Nasdaq composite index advanced 57.79, or 3.5 percent, to 1,721.25. The last time the Nasdaq finished above 1,700 was May 20, 2002, when it closed at 1,701.59 and the last time it was higher at the end of a session was May 17, 2002 when it stood at 1,741.39.

The Standard & Poor’s 500 index rose 18.80, or 1.9 percent, to 1,004.50.

Analysts credited the advance mostly to investors feeling confident that companies will report better-than-expected second-quarter earnings, building on the strong first-quarter results that triggered the market’s current rally.

Some on Wall Street have already been calling this buying spree, which began in mid-March, the start of the next bull market.

“Come Friday, this bull market is four months old and hasn’t corrected. When a bull market last that long and doesn’t give ground, you embrace it,’’ said Larry Wachtel, market analyst at Prudential Securities.

Among Monday’s winners, Microsoft rose 97 cents to $27.42 on a report in The Financial Times that the software giant might pay a special dividend of $10 billion to shareholders.

Wachtel said investors cheered the report in part because they have been more attracted to dividend-paying stocks. Interest in dividends picked up during the three-year bear market when investors were looking for guaranteed income.

But dividends have become even more sought after in the wake of $350 billion tax cut package signed into law in May. Under the law, dividends will be taxed at a maximum rate of 15 percent from 2003 through 2008, down from rates as high as 38.6 percent.

Technology shares rose after Dow Jones Newswires reported that Goldman Sachs predicted companies’ spending on tech could soon rise.

The investment firm made the forecast after a survey of businesses. Dow Jones quoted Goldman analyst Laura Conigliaro as saying, “Although spending intentions remain guarded, our panel shows some increased optimism on second-half spending and early expectations of moderate growth in 2004.’’

Other tech gainers included Intel, rising $1.18 to $22.91, and Cisco Systems, advancing 72 cents to $18.22.

Brokerage house upgrades also contributed to Monday’s gains.

Morgan Stanley climbed $1.38 to $46.18 on an upgrade to “buy’’ from “neutral’’ by Merrill Lynch, while bebe stores advanced $1.50 to $22.41 after First Albany raised its rating to “buy’’ from “neutral.’’

Kroger rose 39 cents to $17.27 after Sanford Bernstein upgraded the supermarket company to “outperform’’ from “market perform.’’

Alcoa advanced 41 cents to $25.71 ahead of earnings due out Tuesday. Alcoa is the first Dow industrial to report quarterly results.

Advancing issues outnumbered decliners more than 2 to 1 on the New York Stock Exchange. Volume was moderate.

The Russell 2000 index, which tracks smaller company stocks, rose 9.36, or 2.1 percent, to 465.71.

Overseas, Japan’s Nikkei stock average finished Monday up 2.6 percent. In Europe, Britain’s FTSE 100 advanced 1.3 percent, France’s CAC-40 surged 3.6 percent and Germany’s DAX index climbed 2.9 percent.

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