Intel Corp's quarterly outlook and results shattered expectations on Tuesday, boosting its shares 6 percent and fueling optimism over a tech sector recovery before the crucial holiday season.

Analysts said Intel's rosy forecasts for revenue and margins, both of which exceeded expectations, and comments about recovering personal computer demand cheered markets and sparked a tech stock rally that included heavyweights Dell Inc and Hewlett-Packard Co .

Intel Chief Financial Officer Stacy Smith said the technology sector was leading the way out of the economic downturn, as PC demand rebounds.

When you're posting the strongest second- to third-quarter growth in the last three decades, your gross margins are up to near 58 percent, that's all great stuff, said ITIC analyst Laura Didio. It's very welcome news for the high tech sector in general.

What it says is we're on the mend, it's a rebound, she said. This is jump-starting momentum, so the outlook for 2010 is very good.

Intel reported a net profit in its third quarter ended September 26 of $1.9 billion, or 33 cents per share, compared with $2.01 billion, or 35 cents per share, a year earlier.

That exceeded the 28 cent per share profit expected on average by analysts, according to Thomson Reuters I/B/E/S.

It forecast fourth-quarter revenue of $10.1 billion, plus or minus $400 million, and said gross margins in that period should be 62 percent, plus or minus 3 percentage points. Analysts polled by Thomson Reuters I/B/E/S, on average, expected fourth-quarter revenue of $9.5 billion and a gross margin of 56.86 percent.

Revenue fell 7.8 percent in the third quarter to $9.4 billion from $10.2 billion a year ago, but surpassed the $9.06 billion expected by analysts polled by Thomson Reuters I/B/E/S.

In a statement, Smith said top-line revenue growth was driven by better-than expected demand for microprocessors and chipsets.

This is a healthy sign for the whole sector. Intel is a bellwether not only in that it reports early, but in that it effects a broad ecosystem, said Roger Kay, analyst at Endpoint Technologies. It feels as if there are more and more signs that there's activity, that business levels are returning to something resembling normal.

TURN AROUND

Chipmakers like Intel have suffered in the global downturn as corporations have slashed IT spending and demand for electronics has collapsed, forcing companies to dial back production and lay off workers.

But there are signs of a sector-wide recovery. Despite lagging year-ago figures, global chip sales posted their sixth consecutive monthly increase in August, according to the Semiconductor Industry Association.

Analysts say September chip sales likely rose more than 6 percent from August on anticipated holiday demand, as well as chip orders ahead of the upcoming release of Microsoft Corp's Windows 7 operating system.

Intel Chief Executive Paul Otellini said in September he thought personal computer sales would be flat to slightly up from a year ago -- a signal end-demand was strengthening.

Industry tracker Gartner in September estimated worldwide PC shipments would fall only 2 percent from 2008, an improvement over earlier forecasts. Global revenue could grow 10 percent next year to $233 billion after two years of sharp decline.

Shares of Intel rose more than 6 percent after hours, before paring gains to 4.5 percent at $21.42, versus a $20.49 regular close.

Arch-rival Advanced Micro Devices Inc rose 5.4 percent, and shares in Dell, HP, IBM and Microsoft all gained more than 1 percent in extended trading.

(Reporting by Clare Baldwin and Ian Sherr; Editing by Edwin Chan and Richard Chang)

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