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Stocks jump after consumer confidence level surges

CONSUMERS are getting more confident about the U.S. economy, and Wall Street is tagging along.

Stocks surged yesterday, their first big win in a week, after the Conference Board said consumer sentiment rose in May to the highest level since September. Major stock indicators jumped more than 2 percent, including the Dow Jones industrial average, which added 196 points.

The day's gains pushed the Standard & Poor's 500 index barely into the black for the year, and leaves the Nasdaq composite index up 11 percent in 2009. The Dow is still down 3.5 percent for the year.

The research group's Consumer Confidence Index vaulted to 54.9 from 40.8, soaring past the 42.3 that economists surveyed by Thomson Reuters expected.

Investors watch the indicator for signs of whether consumers might start shopping more or making bigger purchases such as cars and homes. Spending by consumers makes up more than two-thirds of U.S. economic activity.

Jim King, chief investment officer at National Penn Investors Trust Co., said the improvement in consumer confidence surprised investors. With unemployment still high and expected to go higher, many market watchers thought the mood on Main Street would remain gloomy.

"The consumer confidence figure is one that no one really pinned a lot of hopes on as going higher," he said.

Traders saw green on their screens on the first day back from a long weekend but the compressed week could still trip up the market. Data are due on home sales as well as the economy's overall output in the first three months of the year, and investors will be eyeing General Motors Corp. as its June 1 restructuring deadline approaches.

The Dow rose 196.17, or 2.4 percent, to 8,473.49. The S&P 500 index rose 23.33, or 2.6 percent, to 910.33, and the Nasdaq rose 58.42, or 3.5 percent, to 1,750.43.

Analysts said the day's quick gains reveal how jumpy the market remains and that it could show a similar reaction to bad news.

"What we see is lot of nervous money on the sidelines so it's sort of this game of chicken when people don't want to be left out of a more sustained rally," said Chris Cordaro, chief investment officer at RegentAtlantic Capital LLC.

Investors have been questioning whether the stock market's massive two-month rally can be sustained given the continuing weakness in the global economy in areas like housing and unemployment. Since it closed at 8,512.28 on May 8, the Dow has traded within a 300-point range, lifted by positive news like yesterday's consumer reading but also hurt by nagging worries about the economy.

The Dow is up 29.4 percent from its 12-year low hit on March 9, but even with the recent gains it's still 40.2 percent below its peak in October 2007.

The Conference Board's report marked the second consecutive month of large gains in its measure of consumer confidence. Its previous report on April 28 helped stanch a slide in the market that day, and investors appeared heartened that the improving trend was continuing into May.

Stocks dependent on strong consumer spending jumped. J.C. Penney Co. rose US$1.63, or 6.5 percent, to US$26.76, while Best Buy Co. advanced US$1.87, or 5.3 percent, to US$37.05.

Home builder KB Home rose 86 cents, or 5.9 percent, to US$15.50, and DR Horton Inc. rose 46 cents, or 5.1 percent, to US$9.47. Investors shrugged off a downbeat reading on the housing market. S&P/Case Shiller reported a 18.7 percent drop in its March home price index. The decrease was a little bigger than in February, and slightly larger than economists predicted.

Tech stocks showed some of the biggest gains in part after an analyst raised her rating on Apple Inc. She contends the growth of the company's iPhone device has been underestimated. Apple rose US$8.28, or 6.8 percent, to US$130.78.

GM reversed an early slide after it outlined a deal with labor unions, rising 1 cent to US$1.44. However the automaker has yet to reach a deal with its major bondholders and is facing a midnight deadline yesterday for doing so.

The Russell 2000 index of smaller companies jumped 22.69, or 4.8 percent, to 500.31 as investors placed bets that these businesses would be among the first to benefit from an improving economy as often happens following recessions.

About five stocks rose for every one that fell on the New York Mercantile Exchange, where volume came to 1.34 billion shares compared with 1.1 billion shares traded Friday ahead of the holiday weekend.

Bond prices fell, pushing the yield on the 10-year Treasury note up to a six-month high of 3.55 percent from 3.46 percent late Friday.


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