Google, Citi lead stock rally

NEW YORK (Reuters) - Stocks rose sharply on Friday as a strong profit from Google Inc (GOOG.O: Quote, Profile, Research) fueled a rally in the technology sector and as Citigroup Inc (C.N: Quote, Profile, Research) gave investors hope the credit crisis was nearing an end.

Adding to investor enthusiasm, robust international sales helped manufacturers Honeywell International (HON.N: Quote, Profile, Research) and Caterpillar Inc (CAT.N: Quote, Profile, Research) post stronger-than-expected earnings. The two Dow components helped lift the blue chip index to a three-month high.

Google's shares rose more than 20 percent after the Internet company said it saw no impact from a weakening economy as it posted a better-than-expected quarterly profit and waved off fears of an online advertising slump.

And while Citigroup's loss was larger than expected, investors took comfort that the bank and its new chief executive, Vikram Pandit, are taking steps to get past credit problems, drive down expenses and restore luster to a stock down by about half over the last year. Citi's shares jumped 7.3 percent to $25.78.

"Google's earnings were just fantastic," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.

"But often it's the reaction to the earnings that is more important than the actual earnings themselves. Citi's shares are probably gaining on the cost-cutting -- it looks as if these companies are really starting to do what they need to."

The Dow Jones industrial average .DJI was up 252.56 points, or 2.00 percent, at 12,873.05. The Standard & Poor's 500 Index .SPX was up 28.18 points, or 2.06 percent, at 1,393.74. The Nasdaq Composite Index .IXIC was up 68.39 points, or 2.92 percent, at 2,410.22.

Google, Caterpillar and Honeywell helped improve investor sentiment about the first-quarter earnings picture. The earnings season had got off to a rough start last week, with disappointments from Alcoa Inc (AA.N: Quote, Profile, Research) and General Electric Co (GE.N: Quote, Profile, Research).

Google's stock soared 21.3 percent to $545.17 on the Nasdaq. Analysts at six brokerages, including Merrill Lynch and Oppenheimer, raised their share price targets on Google.

Other Internet-based shares were trading higher after Google's earnings, including Chinese search engine Baidu.com (BIDU.O: Quote, Profile, Research), up 9 percent to $337.49, and online retailer Amazon.com (AMZN.O: Quote, Profile, Research), up 9.2 percent to $80.86.

Honeywell shares rose 5.6 percent to $60.64 while Caterpillar stock gained 8.2 percent to $85.