Wall Street rallies on profits

Markets looked set to get another earnings-driven boost Wednesday after Intel Corp reported results that beat expectations after the market closed. The chipmaker also gave a stronger-than-expected sales forecast.

U.S. stock index futures rose, while Intel jumped more than 5 percent to $22.16 in extended trade.

Alcoa Inc , the largest U.S. aluminum producer and seen as a bellwether for the economy, rose 1.2 percent to $11.00 after it reported stronger-than-expected results and raised its estimate for global aluminum consumption.

Many investors still are fearing deterioration in the economy, and that's why this earnings season is so important. It will illuminate what comes next from the view of management, said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors in Rochester, New York.

The earnings optimism on Tuesday also boosted shares of other companies that will report earnings later this week, including major banks. JPMorgan Chase & Co gained 3.3 percent to $40.48, while Bank of America Corp rose 3 percent to $15.67.

U.S. Senate Democrats appeared to nail down the votes needed to pass a rewrite of financial regulation. If the bill is passed, it could be a short term negative for the banking sector, but for now the group shrugged it off, said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co. in San Francisco.

The Dow Jones industrial average <.DJI> gained 146.75 points, or 1.44 percent, to 10,363.02. The Standard & Poor's 500 Index <.SPX> rose 16.59 points, or 1.54 percent, to 1,095.34. The Nasdaq Composite Index <.IXIC> jumped 43.67 points, or 1.99 percent, to 2,242.03.

Even so, recent low volume suggests the market's longest winning streak since mid-April could be running out of steam, while the cost of protection in the options market against a market drop keeps growing.

The S&P 500 Index <.SPX> is up about 8 percent from a recent intraday low on July 1, though trading volume has been lackluster. Volume in the past two sessions was the lightest of the year and although Tuesday's volume fared better, it was still below last year's average.

It's raising new cautionary flags, said Scott Fullman, director of derivative investment strategy at WJB Capital Group.

Weak volume is generally viewed as an indication investors lack conviction, but analysts noted volume has been lower since the market started to rally in March 2009. Summer holidays can also cause lighter trading.

COST OF PROTECTION

In the options market, a heavy put buying was detected in an exchange-traded fund that tracks the S&P, indicating that a trader is combining the leverage of options and ETF to obtain a short-term insurance policy.

One investor snatched up July $35 puts on the ProShares Ultra S&P 500 , an exchange traded fund that delivers double the performance of the S&P 500. The heavy purchase drove premiums to jump from 32 cents to as high as 46 cents, said David Russell, options strategist at optionMonster.com.

Volume surged to 19,624 contracts, more than nine times open interest in the strike. The ETF rose 3.1 percent to $36.42, up more than 13 percent from a week ago.

On the downside, Apple Inc slipped 2 percent after a poor consumer guide review for its iPhone 4 amid complaints about the device's reception. Apple was down at $252.11.

Some of the blogs out there were speculating there was going to have to be a full iPhone 4 recall and since then they've been defended by five houses on Wall Street, said Dave Lutz, managing director at Stifel Nicolaus in Baltimore.

I think the Street is anticipating Steve Jobs doing what it takes to make it right and not have the image tarnished, said Lutz, who is long Apple.

About 8.55 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's estimated daily average of 9.65 billion.

Advancers beat decliners 2,644 to 387 on the NYSE, while on the Nasdaq, advancers beat decliners 2,244 to 442.

(Additional reporting by Angela Moon; Editing by Kenneth Barry)