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Stocks surge, S&P 500 turns positive for 2009

ANOTHER big rally on Wall Street has erased the losses suffered by the Standard & Poor's 500 index this year.

The S&P 500, the market barometer preferred by professional investors, is now up 0.4 percent for 2009. Many investments like mutual funds either mirror or are measured against the index.

Gains in housing, financial and materials stocks pushed the S&P up 3.4 percent yesterday. The Dow Jones industrial average jumped 214 points but is still down 4 percent for the year.

Two new economic nuggets bolstered the case that the economy's slide could be slowing and helped extend a two-month rally. Pending U.S. home sales increased more than expected to post their second straight monthly gain, while construction spending rose unexpectedly in March after five straight decreases.

Jerry Webman, chief economist at Oppenheimer Funds Inc., said stocks are rallying because investors aren't fearful as they were months ago that the economy is headed for the abyss. Much of the economic and earnings news since the stock market hit 12-year-lows in early March has been at least somewhat upbeat.

"There's been this fear that every six months another shoe drops and maybe there isn't a shoe in mid-air right now," he said.

The S&P 500 index rose 29.72, or 3.4 percent, to 907.24, its first close above 900 since Jan. 8. The index had previously only been higher in the first five trading days of the year.

The Dow rose 214.33, or 2.6 percent, to 8,426.74. The blue chips hadn't closed above the 8,400 level since Jan. 13.

The Nasdaq composite index rose 44.36, or 2.6 percent, to 1,753.56. It is up 11.8 percent in 2009.

The rally came after the National Association of Realtors said its index of pending sales for previously occupied homes rose 3.2 percent to 84.6. That was well ahead of the 82.1 economists had been expecting and the second month of gains after the index hit a record low in January.

Separately, the Commerce Department said construction spending rose 0.3 percent, the best showing since a similar increase 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."

The data on pending home sales touched off a rally in home builder stocks. KBR Inc. rose US$1.25, or 7.9 percent, to US$17.15, while Lennar Corp. rose 88 cents, or 9.3 percent, to US$10.34.

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.

Another concern for the market is the release Thursday of the results of the government's "stress tests" on the 19 largest U.S. financial companies. Some analysts have worried in recent weeks that renewed anxiety about the state of the financial system could upend the market's powerful two-month advance, which has sent the S&P 500 index up 34.1 percent since March 9.

But investors set aside some worries about big financial companies even as analysts predict that the tests - designed to determine which banks would need more cash if the recession worsens - will show that several banks need more capital.

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.

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

Citigroup declined to comment, and a Bank of America spokesman called the report "completely inaccurate." Citi rose 23 cents, or 7.7 percent, to US$3.20, while Bank of America jumped US$1.68, or 19.3 percent, to US$10.38.

Investors shrugged off word that regulators told Wells Fargo & Co. to shore up its finances after the "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. The company declined to comment.

Wells Fargo rose US$4.64, or 23.7 percent, to US$24.25.

Beyond financials, material stocks rose as prices for silver and other metals jumped following a report by a Chinese business group that manufacturing in the country grew for a second month in April.

In other trading, the Russell 2000 index of smaller companies rose 19.84, or 4.1 percent, to 506.82.

About five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.1 billion shares.

The economic reports and a big purchase of government debt by the Federal Reserve left bonds little changed. The yield on the benchmark 10-year Treasury noted remained flat at 3.16 percent from late Friday.


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