Wall Street kicked off the third quarter with a sharp advance Monday as mild manufacturing and construction data lifted hopes about interest rates and energized investors in light pre-holiday trade.
Stocks saw a solid early start on news of a possible alliance between General Motors and Nissan Motor, although GM slumped ahead of its June sales results. Meanwhile, takeover speculation at Alcoa left the aluminum maker among the biggest gainers in the Dow Jones industrial average.
A slowdown in monthly manufacturing growth and construction spending was unexpected but nonetheless reinforced views that a moderating economy would keep the Federal Reserve from raising interest rates much further, as did a drop in prices paid by producers.
But with many traders out of the office ahead of the Fourth of July, analysts said the light trading volume probably exaggerated stocks' gains. The stock markets shut down at 1 p.m. Eastern time and will be closed today.
"There may be some follow-through reaction on Wednesday" to the economic reports, said Russ Koesterich, senior portfolio manager at Barclays Global Investments. However, "with this type of volume, you can't read much into the market's reactions."
The Dow rose 77.80 points, or 0.7%, to 11,228.02. On Friday, the Dow fell 40 points as money managers locked in profits from its 217-point rally Thursday.
Broader stock indicators also advanced. The Standard & Poor's 500 index gained 9.99 points, or 0.8%, to 1,280.19, and the Nasdaq composite index surged 18.34 points, or 0.8%, to 2,190.43.
The Russell 2,000 index of smaller companies climbed 6.13 points, or 0.9%, to 730.80.
Advancing issues led decliners by 3 to 1 on the New York Stock Exchange.
The 10-year U.S. Treasury note was little changed, edging up to a yield of 5.15%, from 5.14% on Friday. The New York Mercantile Exchange was closed, so crude oil futures were unchanged.
Although Monday's economic news helped support views that interest rates may have been hiked enough to slow the economy and contain inflation, the Labor Department's report on employment and wages Friday is more likely to be market-moving, analysts said.
"If all we do is look at this data as it pertains to the Fed, this is good news," said Art Hogan, chief market analyst for Jefferies & Co. "But prices paid and construction spending are not the most important pieces of data right now. Nonfarm payrolls on Friday will be what attracts attention."
The Institute for Supply Management's June manufacturing index fell 0.6 point to 53.8; economists had been forecasting a rise to 55. Although the prices-paid index slid 0.5 point to 76.5, that came in ahead of forecasts for a reading of 75.
Elsewhere, the Commerce Department said a sharp drop in home building drove a 0.4% decline in May construction spending. Economists had been anticipating a 0.2% increase.
In other market highlights:
* Mexican markets rallied as investors celebrated what they saw as an almost certain presidential victory for Felipe Calderon, a conservative widely favored by Mexican business.
The IPC index of leading shares soared 4.77% to 20,060.82, its second-strongest one-day gain this year.
* Nissan said it would begin talks of GM joining an existing partnership between the Japanese automaker and Renault. Reports have said Nissan and Renault could buy as much as 20% of GM's stock. GM nonetheless lost 38 cents to $29.41.
Ford Motor fell 22 cents to $6.71 after it said June U.S. car and truck sales fell 6.9%.
* Alcoa gained 73 cents to $33.09 on reports that mining companies such as BHP Billiton and Rio Tinto Group might pursue it for acquisition.
* Banks and financial-services companies gained on speculation that interest rates might stop rising. Higher rates reduce the value of bonds owned by banks, brokers and insurance companies and also cut into demand for mortgages and other loans.
Citigroup rose 72 cents to $48.97 and Bank of America rose 71 cents to $48.81. Wells Fargo added 36 cents to $67.44 and Countrywide Financial picked up 50 cents to $38.58.
* Nortel Networks surged after Jefferies upgraded the telecom equipment company, citing a low share price and changes being implemented after an accounting scandal two years ago. Nortel rose 7 cents to $2.31.
* Wal-Mart Stores sank 60 cents to $47.57 after forecasting its June sales at the low end of estimates for growth of 1% to 3%, citing high gasoline prices.
Reuters and Bloomberg News were used in compiling this report.