Wall Street posted a sizable advance Wednesday after the government reported a larger-than-expected increase in orders for big-ticket manufactured goods that indicated the economy could be stronger than some investors thought.
The Commerce Department said orders for durable goods jumped 1.3 percent in July compared with the previous month, led by a big gain in demand for commercial aircraft. That was well above the 0.1 increase expected by economists surveyed by Thomson/IFR.
Durable goods, which also include cars, appliances and machinery, are under scrutiny not only because they reflect business spending, but because they are also an indicator of consumer confidence. The July increase equaled a 1.3 percent rise in June; both months produced the strongest gains since a 4.1 percent leap back in December.
Light, sweet crude rose $1.88 to settle at $118.15 per barrel on the New York Mercantile Exchange on worries that Tropical Storm Gustav could enter the Gulf of Mexico as a hurricane and disrupt oil and natural gas production.
"The strength in durable goods is just the latest indication that manufacturing is actually holding in quite well and that's a really big plus," said Stuart Schweitzer, global markets strategist at J.P. Morgan's Private Bank. "Against the backdrop of the drumbeat of negative news of the last several weeks it was encouraging to see a little bit of positive news. The basic fact of the matter is that although the economy has been weak, it hasn't fallen off a cliff."
The Dow Jones industrial average rose 89.64, or 0.79 percent, to 11,502.51 after rising more than 140 points.
Broader stock indicators also rose. The Standard & Poor's 500 index gained 10.15, or 0.80 percent, to 1,281.66, and the Nasdaq composite index rose 20.49, or 0.87 percent, to 2,382.46.
As it had been earlier in the week, trading was again light because many investors are fitting in vacations ahead of Labor Day. Low volumes tend to skew the market's moves.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.77 percent from 3.78 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.
Schweitzer noted the relative strength of the manufacturing sector, fed in part by a weak dollar that makes U.S. goods less expensive abroad, is helping undergird the overall economy.
"The weakness in the dollar and the strength in U.S. exports are acting like a bit of an automatic stabilizer for the U.S. economy," he said. "It's a key offset at a time when other things are not so good."
But Mark Coffelt, portfolio manager at Empiric Funds in Austin, Texas, cautioned against reading too much into the durable goods report and said economic readings will likely continue to come in mixed. He predicts volatility also will likely continue as investors thumb through a list of concerns ranging from the financial sector, to housing to energy costs.
"I think what we see is a lot of confusion right now. I'm not sure investors really know what to do. You've got oil jumping all over the place," he said.
Rising energy prices Wednesday curtailed stocks' advance in early trading but investors eventually set aside some of their concerns.
The rise in oil prices still weighed on companies such as airlines, which have been hit hard by rising costs for jet fuel. It also buoyed names in the energy sector.
Northwest Airlines Corp. fell 79 cents, or 8.3 percent, to $8.76, while U.S. Airways Group fell $1.27, or 11 percent, to $9.88.
Oil refiner Tesoro Corp. rose $1.84, or 11 percent, to $18.41, while Valero Energy Corp. added $1.42, or 4.2 percent, to $35.02.
Several retailers advanced after signaling that business is stronger than some on Wall Street might have expected, offering investors some reassurance about consumer spending and in turn, the health of the economy.
Borders Group Inc. rose $1.03, or 19 percent, to $6.39 after the bookseller reported better-than-expected second-quarter results and slashed debt.
Clothing retailer Talbots Inc. jumped $2.82, or 28 percent, to $12.82 after the company raised its forecast for 2008 per-share earnings.
Chico's FAS Inc. rose 50 cents, or 9.8 percent, to $5.59 after the women's apparel retailer's fiscal second-quarter profit fell sharply but beat Wall Street's expectations.
Financials also rose as the durable goods report lifted overall investor sentiment and eased fears that a further economic slowdown will hit already troubled banks and other lenders.
Bank of America Corp. rose 63 cents, or 2.2 percent, to $29.65, and was the biggest percentage gainer among the 30 stocks that make up the Dow industrials. Merrill Lynch & Co. rose $1.17, or 4.9 percent, to $25.27.
Shares of mortgage companies Fannie Mae and Freddie Mac rose for a third straight session as analysts questioned whether a bailout of the government-chartered companies was imminent. Fannie Mae rose 86 cents, or 15 percent, to $6.48, while Freddie Mac rose 78 cents, or 20 percent, to $4.75.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where consolidated volume came to a light 3.42 billion shares compared with 3.44 billion shares Tuesday.
The Russell 2000 index of smaller companies rose 9.44, or 1.30 percent, to 732.95.
Overseas, Japan's Nikkei stock average fell 0.20 percent. Britain's FTSE 100 rose 1.05 percent, Germany's DAX index fell 0.31 percent, and France's CAC-40 rose 0.10 percent.