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Traders extend buying after orders for manufactured goods, new home sales top forecasts
By STEPHEN BERNARD and TIM PARADIS
AP Business Writers
(AP) 01:27:06 PM (ET), Wednesday, May 26, 2010 (NEW YORK)
Stocks rose Wednesday after gains in durable goods orders and home sales helped reassure traders that the economy is recovering.

The Dow Jones industrial average rose about 70 points in afternoon trading but was off its highs of the day. Trading has been volatile since major indexes hit their highs for the year a month ago.

Treasury prices tumbled after traders, no longer feeling the need for safety, returned to riskier assets like stocks and commodities.

The buying began Tuesday when the Dow recovered from a morning loss of nearly 300 points to end down by about 23. Financial stocks led the rebound after congressional leaders signaled they wouldn't push for banks to spin off their lucrative trading desks as part of financial regulation reform.

The recovery on Tuesday gave traders a break from persistent worries about European government debt and allowed them to focus on economic news.

Two reports from the Commerce Department offered the latest evidence that the U.S. economy is improving. Orders for big-ticket manufactured goods rose 2.9 percent last month. It was the biggest jump in three months and more than double the gain economists polled by Thomson Reuters had forecast.

U.S. manufacturing has been strong throughout the recovery. April's figures were boosted by a big rise in transportation orders. Excluding transportation, orders fell 1 percent.

The government also said that sales of new single-family homes rose 14.8 percent to an annual rate of 504,000 units after buyers raced to secure an expiring tax credit. That followed a 29.8 percent rise in March that was the biggest increase in 47 years. The latest gain was well ahead of estimates.

The shift in focus Tuesday to domestic news was a change from what has driven trading for weeks. Traders had been concentrating on whether budget cuts in many European countries would slow a global rebound.

Although signs still point to recovery in the U.S., many concerns about Europe remain. The euro, which is used by 16 European countries, fell again Wednesday. The currency has become a symbol of investor confidence in Europe's ability to contain its debt problems. The euro remains close to the four-year low it hit last week. It fell to $1.2216 Wednesday.

Kevin Giddis, managing director of fixed income at Morgan Keegan in Memphis, said the slide in stocks and the rush to Treasurys in the past month has been overdone. The economic numbers confirm that the economy is in far better shape than it was two years ago when Lehman Brothers collapsed and credit evaporated.

"It is a giant fear trade that is being overblown," he said.

In early afternoon trading, the Dow rose 72.32, or 0.7 percent, to 10,116.15. It had been up as much as 135 points.

The broader Standard & Poor's 500 index rose 11.03, or 1 percent, to 1,085.06. The Nasdaq composite index rose 29.05, or 1.3 percent, to 2,240.00.

Treasury prices dropped, driving up yields. The yield on the benchmark 10-year Treasury note rose to 3.26 percent from 3.16 percent late Tuesday.

Crude oil rose $2.02 to $70.77 per barrel on the New York Mercantile Exchange. Gold rose.

The slide in stocks has rattled investors still shaken by the market's plunge in late 2008 and early 2009. The concerns about Europe, which makes up about a quarter of the world's economy, have made for big swings in the market.

Maris Ogg, president at Tower Bridge Advisors in Conshohocken, Pa., said major stock indexes had risen too quickly from 12-year lows in March 2009 and needed to pull back. At its 2010 high last month, the Dow was up 71.2 percent. Since then, it's fallen 1,161 points, or 10.4 percent.

A drop of more than 10 percent from a peak in short order is considered by most analysts a "correction."

"It's quite a typical correction," Ogg said, noting that the stocks that had risen the most led the market down. Companies that sell consumer staples and other recession-proof products have been stronger.

Traders have been fearful that the drop indicates the start of another crash.

"Of course, 2008 is still very present in our memories and it was a terrible time. So people immediately hark back to that."

About six stocks rose for every one that fell on the New York Stock Exchange, where volume came to 793 million shares, compared with 890 million traded at the same point Tuesday.

The Russell 2000 index of smaller companies rose 14.03, or 2.2 percent, to 654.05.

Major European indexes snapped back after big losses Tuesday even though traders still have concerns about the economy. Britain's FTSE 100 gained 2 percent, Germany's DAX index rose 1.6 percent, and France's CAC-40 climbed 2.3 percent.


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* What a difference in 24 hours considering the thread on the list below this one I posted yesterday. *

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