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Signs of healing in manufacturing lift US stocks

THE Standard & Poor's 500 index is four digits again.

The widely used stock market measure broke above 1,000 yesterday for the first time in nine months as reports on manufacturing, housing and banking sent investors more signals that the economy is gathering strength. The S&P is used as a benchmark for many mutual funds.

Indexes all rose more than 1 percent, including the Dow Jones industrial average, which climbed 115 points.

The market's July rally blew into August on the type of news that might have seemed unthinkable when stocks cratered to 12-year lows in early March. A report predicted U.S. manufacturing activity will grow next month, the government said construction spending rose in June and Ford Motor Co. said its sales rose last month for the first time in nearly two years.

"The market is beginning to smell economic recovery," said Howard Ward, portfolio manager of GAMCO Growth Fund. "It may be too early to declare victory, but we are well on our way."

The day's reports were the latest indications that the recession that began in December 2007 could be retreating. Better corporate earnings reports and economic data propelled the Dow Jones industrial average 725 points in July to its best month in nearly seven years and restarted spring rally that had stalled in June.

A report yesterday from the Institute for Supply Management, a trade group of purchasing executives, signaled U.S. manufacturing activity should grow next month for the first time since January 2008 as industrial companies restock shelves. Also, the Commerce Department said construction spending rose rather than fell in June as analysts had expected. The reports and rising commodity prices lifted energy and material stocks.

Ford said sales of light vehicles rose 1.6 percent in July. Other major automakers said sales showed signs of stability. Investors predicted that the government's popular cash for clunkers program would boost overall auto sales to their highest level of the year.

Stronger earnings reports from European banks drove buying of financial companies.

Even with promising economic signs, it's too soon to celebrate. Major indexes are still down 35 percent from their peak in October 2007. But investors' confidence - or, for some, fear of missing a rally that has pulled stocks up 14 percent in only 16 days - is keeping buyers in the market.

"It would take a lot to derail the emerging optimism," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.

The Dow rose 114.95, or 1.3 percent, to 9,286.56. The S&P 500 index rose 15.15, or 1.5 percent, to 1,002.63. It was the first finish above 1,000 since early November.

The Nasdaq composite index rose 30.11, or 1.5 percent, to 2,008.61, its first close above 2,000 since October.

In other signs of investors' growing confidence, safe-haven assets like Treasurys and the U.S. dollar fell, while oil and other commodities prices surged. The yield on the 10-year Treasury note surged to 3.63 percent from 3.48 percent late Friday as its price fell more than a point.

The ISM's manufacturing report fanned hopes for a hard-hit industry. The group said manufacturing activity slowed in July at the slowest pace in nearly a year.

"We're past the worst of it on the manufacturing side, and we could even be getting back to growth by the third quarter of this year," said Jill Evans, co-portfolio manager, Alpine Dynamic Dividend Fund.

Reports from European banks eased concerns about the effect that the credit crisis and recession have had on the global banking system. Barclays PLC said its first-half net profit increased 10 percent. HSBC Holdings PLC reported a 57 percent drop in its first-half profit, but results were better than anticipated.

Earnings reports have shown that companies aren't losing money at the rapid pace they were last fall and earlier this year. Though there are concerns that the aggressive cost-cutting measures businesses have undertaken to boost profits are not sustainable, forecasts in recent weeks from companies like Intel Corp. and Caterpillar Inc. suggest business conditions are improving.

Still, the market is keeping watch on unemployment levels and consumer spending, as well as rising commodity prices and interest rates that could outpace the economy's recovery.

In other trading, oil, gold and other commodities rose. Commodities traders were heartened by news that manufacturing in China and Europe is expanding, a sign of support for industrial materials like copper. Copper prices, which have nearly doubled this year thanks in large part to unrelenting demand from China, hit a 10-month high.

Light, sweet crude soared US$2.13 to settle at US$71.58 a barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies rose 9.07, or 1.6 percent, to 565.78.

Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.2 billion shares, compared with 1.5 billion Friday.


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