Apple shares closed at their highest level for almost two years last night as Wall Street considered how the company's iPod could revolutionize its fortunes.

Earlier in the week Merrill Lynch analyst Steve Milunovich in a note to clients said the product could "make Apple relevant again", and sales of the product could reach $1 billion in fiscal 2004 – about 13 per cent of Apple's sales.

A report on says: "There's reason to believe iPods are attracting more foot traffic to the outlets, where customers will be exposed to Apple's sleekly displayed, consumer-friendly computers."

The report says Milunovich thinks iPod could create a "halo effect", causing some users to switch to Macs. It also looks at how the investment community already appreciates Apple's innovation – and is now witnessing some key strategic moves on behalf of the company.

Apple's strategic moves include its alliances with Pepsi, AOL and HP. It also includes the company's decision to ensure both iPod and iTunes are cross-platform products.

"Taken together, the decisions suggest Apple may be rethinking its traditional disdain for the consumer mass market", the report says.