Stocks rose sharply in New York yesterday, led by telecommunications and transportation issues.

At the close on Wall Street, the Dow Jones was up 128.23, or 1.25 per cent, at 10,401.23. Advancing issues outnumbered decliners by an 8-to-7 margin on the New York Stock Exchange, with 1,729 up, 1,263 down and 523 unchanged. NYSE volume totalled 795.93 million shares, against 891.87 million in Friday's session.

The Russell 2000 index of smaller companies rose 3.08 at 426.61.

"With the pounding that the market took in early and late September, it got pretty oversold, so it was set up for a reflex bounce or a short-term rally," said Richard McCabe, chief market analyst at Merrill Lynch and Co.

But he predicted the rally would be short-lived. "We haven't gotten to the bottom yet," he said.

The rally came despite worries that today's meeting of the Federal Reserve's policy-writing Open Market Committee will lead to a rise in interest rates.