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Investors nudge rally forward with small gains

INVESTORS made few big moves yesterday after stocks rocketed 14 percent in just 16 days. The market put up modest gains as many traders held their positions and looked toward the Labor Department's employment report on Friday.

On Monday, the blue chips jumped 115 points and the Standard & Poor's 500 index nosed above 1,000 for the first time in nine months.

Yesterday's mostly upbeat economic data helped prevent the market's pause from turning into the type of slide that can follow big jumps. Analysts have been predicting stocks would idle after such a strong run, and some saw investor caution at work.

"There is a lot of concern that the market has moved too far too fast and that we've gotten ahead of the economy," said Brian Bush, director of equity research at Stephens Inc.

Still, investors did receive a few more doses of positive news yesterday, enough to keep them from giving up hope. A rise in consumer spending last month and a fifth straight monthly increase in pending home sales provided new evidence that the economy could be stabilizing.

Corporate news also helped buoy sentiment. Caterpillar Inc. predicted that cost cuts and other efforts will enable it to post profits over the long term no matter how slowly the economy recovers. The world's largest maker of construction and mining equipment is considered a bellwether of the global economy. Its stock was the biggest gainer among the 30 stocks that make up the Dow.

The Dow rose 33.63, or 0.4 percent, to 9,320.19. The S&P 500 index rose 3.02, or 0.3 percent, to 1,005.65, while the Nasdaq composite index rose 2.70, or 0.1 percent, to 2,011.31. The gains left stocks at new highs for the year.

Stocks jumped more than 1 percent Monday on upbeat reports on manufacturing, housing and banking.

The advance adds to the Dow's rally in July of 725 points, or 8.6 percent. It was the best month for the Dow in nearly seven years and injected a stalled spring rally with new energy. The Dow is still down 34 percent from its peak in October 2007.

Meanwhile, traders are already looking to the Labor Department's report for July. It is often the most important economic reading each month and is drawing even more attention as investors look for clues about when perhaps the biggest drag on the economy will begin to ease.

Unemployment stands at a 26-year high of 9.5 percent and is expected to rise to more than 10 percent. Investors are looking for the pace of layoffs to slow so for the economy can start to heal.

"The second half of the week is going to be heavily dominated by the employment data," said John Canally, economist at LPL Financial. "That is keeping markets hesitant."

Many analysts predict the market will continue to climb as investors use dips to put money into stocks.

Traders have seen better-than-expected corporate earnings reports and encouraging forecasts this summer as well as improvements in manufacturing and housing as signs that the nearly two-year-long recession is coming to an end.

"People don't want to miss this market if it is going significantly higher," Bush said.

But there are still difficulties for the economy.

The Commerce Department said consumer spending rose 0.4 percent in June, slightly more than anticipated and the second straight monthly gain. But the report also showed that personal incomes, an indicator of future spending, dropped by a larger-than-expected 1.3 percent.

The National Association of Realtors reported a better-than-expected rise in pending home sales for a fifth straight month in June.

Bond prices fell, pushing the yield on the benchmark 10-year Treasury note, a widely used benchmark for mortgages and other kinds of loans, up to 3.69 percent from 3.64 percent late Monday.

Rising stocks outnumbered those that fell by 3-to-2 on the New York Stock Exchange, where volume totaled 1.2 billion shares and was essentially flat with Monday.

In other trading, the Russell 2000 index of smaller companies rose 4.96, or 0.9 percent, to 570.74.


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