Stocks rose sharply Wednesday after the government reported a larger-than-expected increase in orders for big-ticket manufactured goods, suggesting the economy could be stronger than some investors thought. The rally took place despite a continued rebound in the price of oil.
The Commerce Department said orders for durable goods jumped 1.3% in July compared with June, led by a big gain in demand for commercial aircraft. Economists had expected a flat reading. The July increase equaled a 1.3% rise in June; both months produced the strongest gains since a 4.1% leap in December.
"The strength in durable goods is just the latest indication that manufacturing is actually holding on quite well, and that's a really big plus," said Stuart Schweitzer, global markets strategist at JPMorgan Chase'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 points, or 0.8%, to 11,502.51. At one point during the session, the blue-chip index was up more than 140 points.
Broader stock indicators also rose. The Standard & Poor's 500 index gained 10.15 points, or 0.8%, to 1,281.66, and the Nasdaq composite index jumped 20.49 points, or 0.9%, to 2,382.46.
The Russell 2,000 index of smaller companies rose 9.44 points, or 1.3%, to 732.95.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange. Volume was light.
Rising energy prices limited the advance in stocks early in the day, but investors eventually set aside some of their concerns. Crude futures rose $1.88 to $118.15 a 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.
Several retailers advanced after signaling that business was stronger than expected.
Borders Group surged $1.03, or 19%, to $6.39 after the bookseller reported better-than-expected second-quarter results and said it had slashed its debt.
Clothing retailer Talbots soared $2.82, or 28%, to $12.82 after the company raised its earnings forecast for the year.
Financial stocks rallied as the durable-goods report eased fears of a further economic slowdown that would hit already troubled banks and other lenders.
Bank of America climbed 63 cents, or 2.2%, to $29.65. Merrill Lynch jumped $1.17, or 4.9%, to $25.27.
Fannie Mae and Freddie Mac rose for a third straight session as analysts questioned whether the mortgage-finance companies would require a bailout. Fannie Mae shot up 86 cents, or 15%, to $6.48, while Freddie Mac surged 78 cents, or 20%, to $4.75.
The increase in energy prices weighed on airline stocks while lifting names in the energy sector.
Northwest Airlines fell 79 cents, or 8.3%, to $8.76, while U.S. Airways Group fell 26 cents, or 3.5%, to $7.08.
Oil refiner Tesoro jumped $1.84, or 11%, to $18.41, while Valero Energy added $1.42, or 4.2%, to $35.02.
Overseas, key stock indexes fell 0.2% in Japan and 0.3% in Germany. Shares rose 1.1% in Britain and 0.1% in France.