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Oil’s sharp slide big boost for stocks

NEW YORK — Wall Street shook off early doldrums and closed sharply higher Tuesday after another drop in oil prices encouraged investors to set aside financial sector worries and go bargain hunting across the market.

Stocks initially fell on uneasiness about the continuing impact of the housing market downturn and the credit crisis on financial company earnings. Disappointing results from American Express Co. and Wachovia Corp. fed those worries.

But a $3 drop in oil — which took crude’s decline in recent weeks to nearly $20 a barrel — persuaded some investors to wade back into equities. The focus on higher oil’s impact on the economy has been so intense that any notch lower breeds optimism that the commodities bubble might perhaps be nearing an end, analysts said.The market was looking at the long-term impact of somewhat cheaper energy — and likely betting that company earnings would pick up if oil extends its decline.

“There’s been so many people speculating about oil taking off and how to handle it, the whole economy has been focused on it,” said Todd Leone, managing director of equity trading at Cowen & Co. “Just the fact that it has dropped — a big move down — helps out. There’s the perception that this will get the economy going again.”

Philadelphia Federal Reserve President Charles Plosser said there could be rate hikes “sooner rather than later” even if employment and financial conditions haven’t revived. Higher rates also would make some government debt less attractive, and that sent Treasury bonds sharply lower.

“Lower oil prices are diverting attention from earnings for the moment,” Larson said. “There’s no questions about some negative earnings reports coming out, but we’re starting to think some of them might be company specific and not broader.”

Investors will get more data with about 158 members of the S&P 500 expected to report this week, the busiest since second-quarter earnings season began earlier this month.

Earnings reports released in the past few days showed some indications that consumers — responsible for more than two-thirds of U.S. economic activity — are scaling back on purchases.

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