NEW YORK — Stocks rallied Monday as several big corporate acquisitions in the health care and electronics sectors quelled investor worries that the economy might be softening.

After steep declines Friday, retail stocks recovered 2 to 5 percent on Monday. Shares of Polo Ralph Lauren Corp. got an extra boost after the company raised revenue guidance, citing higher demand for its goods.

The S&P Retail Index climbed 2.3 percent to 427.37, while the broader S&P 500 closed up 1.7 percent, to 2,061.84. The Dow Jones Industrial Average rose 1.7 percent, to 11,051.05.

Shares of Polo Ralph Lauren ended the day up 15.4 percent at $55.27 on heavy volume. The company raised its first-quarter sales guidance on “stronger worldwide demand for its products with increased full-price sell-throughs both at the company’s retail stores and at better department and specialty stores.”

The company said it expects consolidated revenue growth to be in the mid-20s percentage range versus a year ago. Polo had previously forecast that percentage growth would range from the high teens to the low 20s. The company will address full-year guidance on Aug. 8, when it releases first-quarter results for the period ended July 3.

Virginia Genereux, analyst at Merrill Lynch, upgraded shares of Polo to “buy” and established a $62 price target. “Polo remains one of the few names in apparel with organic growth and margin expansion opportunity,” she wrote. “We see 7 percent earnings accretion from eventual profitability at jeans and footwear (27 cents of earnings per share), assuming $300 million in wholesale revenues at a 15 percent operating margin.”

In other corners of the retail sector, notable gains buoyed by the rally included: Bon-Ton Stores, up 8.3 percent to $25.22; Federated Department Stores, up 3.7 percent to $34.48; and Aéropostale, up 3.4 percent to $29.21. Dillard’s closed the day up 3.6 percent to $29.90, despite a downgrade from Merrill Lynch analyst Stacy Turnof.

Turnof downgraded shares of Dillard’s to “sell” from “neutral” in a research note issued during the afternoon trading session. Turnof said, “Given the strong performance of Dillard’s and our concern about a consumer spending slowdown, we expect a reversal in performance in [the second half].” The analyst said there are “no major near-term catalysts to move stock to next level.”

This story first appeared in the July 25, 2006 issue of WWD. Subscribe Today.

“We believe that the Dillard’s customer [moderate/upper moderate] should be pressured more than its peers if the economy slows,” Turnof added.

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