Stocks jump as home sales, construction up

NEW YORK — Investors are rushing into stocks Monday as surprise increases in pending home sales and construction spending offered the latest signs that the economy is stabilizing.

Stocks surged roughly 2 percent, including the Dow Jones industrial average, which jumped 150 points.

Investors have been more upbeat about prospects for the economy in the last two months and Monday's reports bolstered the case that the economy's slide could be slowing.

Two new economic nuggets added to demand for stocks. Pending U.S. home sales rose more than expected to post their second straight monthly gain, while construction spending rose unexpectedly in March after five straight decreases.

The National Association of Realtors said its index of pending sales for previously occupied homes rose 3.2 percent to 84.6 on strength in nonresidential projects and government building. The report was well ahead of the 82.1 economists had been expecting.

Separately, the Commerce Department said construction spending rose 0.3 percent, the best showing since a similar rise last September. Economists surveyed by Thomson Reuters had expected spending to drop 1.5 percent.

David Kelly, chief market strategist at JPMorgan Funds, said each piece of better-than-expected economic news is easing worries that the recession would worsen.

“It's like watching the market's blood pressure come down,” he said. “Every day that goes by without something bad happening is reducing the risk of an economic rebound getting derailed.”

In early afternoon trading, the Dow rose 153.00, or 1.9 percent, to 8,373.85. The blue chips had been up about 100 ahead of the reports.

The Standard & Poor's 500 index rose 19.26, or 2.2 percent, to 896.78, and the Nasdaq composite index rose 29.83, or 1.7 percent, to 1,749.03.

The market's enthusiasm will be put to several tests this week including the April employment report, one of the most closely watched economic indicators, which comes out on Friday.

But one of the biggest concerns for the market is the release Thursday of the results of the government's “stress tests” on the 19 largest U.S. financial companies. If the results trigger renewed anxiety about the state of the financial system that could upend the market's powerful two-month advance, which has sent the Standard & Poor's 500 index up 29.7 percent since March 9.

The market's spring rally was triggered by word from some of the nation's biggest banks that business conditions were improving, and has since been bolstered by those banks' better-than-expected earnings reports.

Many investors anticipate that the stress tests — designed to determine which banks would need more cash if the recession worsens — will show that several banks need more capital.

Investors are concerned about Citigroup Inc. and Bank of America Corp. The Financial Times reported Sunday that the banks are working on plans to raise more than $10 billion each as they negotiate with regulators over the findings of the stress tests.

But the new economic data and media reports that the stress tests could reassure the market helped financial stocks. Citi rose 13 cents, or 4.4 percent, to $3.10, while Bank of America rose 44 cents, or 5.1 percent, to $9.14.

“There is also a lot of cynicism regarding the results of the tests,” said Jason O'Donnell, senior analyst at Boenning & Scattergood Inc. “A lot of investors are questioning the legitimacy of the results.”

Investors shrugged off word that regulators told Wells Fargo & Co. to shore up its finances after government “stress tests” showed the bank would have trouble surviving a deeper recession.

Wells Fargo is one of several banks that regulators will force to have larger capital buffers to protect them against possible future losses, according to two people familiar with the matter who spoke to The Associated Press on condition of anonymity because of the sensitivity of the process.

Wells Fargo rose $1.60, or 8.2 percent, to $21.21.