Stocks rose sharply Thursday as oil prices fell and investors were unfazed by higher-than-expected inflation in July.
Share prices initially fell after the Labor Department reported another hefty jump in consumer prices. The 0.8% overall rise in July, although smaller than June's increase, was twice as high as expected and brought inflation over 12 months to its highest level in 17 years.
But the market rebounded quickly, perhaps as investors reminded themselves that the latest data reflected conditions when oil prices approached $150 a barrel.
On Thursday, crude futures fell 99 cents to $115.01.
"The greater fear right now is missing the next big rally," said Richard Dickson, senior analyst at Lowry Research in Florida. "Inflation numbers were bad, but they are probably going to get better. The fact that the market has not sold off with any strength, investors are saying, 'Hey, let's go ahead and buy.' "
Stocks of banks and home builders rose sharply on positive remarks about the housing market by former Federal Reserve Chairman Alan Greenspan and on some rare good news for mortgage finance giants Fannie Mae and Freddie Mac.
Retailers, meanwhile, benefited from oil's fall as well as a revised outlook from bellwether Wal-Mart Stores.
The Dow Jones industrial average rose 82.97 points, or 0.7%, to 11,615.93. Halfway through the session, the gauge was up about 185 points. The blue-chip index had lost nearly 250 points over the previous two days.
The Standard & Poor's 500 index rose 7.10 points, or 0.6%, to 1,292.93, and the Nasdaq composite index surged 25.05 points, or 1%, to 2,453.67.
The Russell 2,000 index of small-company stocks jumped 6.69 points, or 0.9%, to 754.38.
Advancing issues outnumbered decliners by about 5 to 3 on the New York Stock Exchange.
The S&P 500 financials index rallied 2.6% and is up 22% from its 2008 low on July 15. Nonetheless, it remains down 28% year to date.
Fannie Mae and Freddie Mac each jumped more than 7% after a securities industry group said larger mortgages financed by the companies could be allowed in the main market for mortgage bonds.
PMI Group, the second-biggest mortgage insurer, surged $1.38, or 49%, to $4.17 on plans to raise cash by selling businesses. MGIC Investment, PMI's larger rival, jumped 10% to $7.80.
Commercial bank JPMorgan Chase and investment bank Morgan Stanley were higher after they agreed to buy back $7 billion in auction-rate securities. JPMorgan rose 90 cents to $37.81, while Morgan Stanley climbed 49 cents to $40.64.
