Shares Climb as Real Estate Outlook Brightens

U.S. stock markets surged yesterday, with a leading index crossing into positive territory for the year after reports showed signs of life in the construction and housing sectors.

The Standard & Poor's 500-stock index topped 900 points for the first time since January, rising 3.4 percent to finish at 907.24 and erase its year-to-date losses. The blue-chip Dow Jones industrial average rose 2.6 percent, or 214.33 points, to 8426.74, but it remains in the red for the year.

The rally came on the heels of the best month-long gain by the markets in nine years.

"Life goes on, and I think people realize that there's opportunities out there," said Bernie McGinn, founder of McGinn Investment Management in Alexandria. "They're looking past the current recession."

One ray of hope yesterday came from an unexpected rise in construction spending after five months of decline. According to the Commerce Department, spending on non-residential construction in March increased by 2 percent; residential construction spending fell again but by a smaller amount than in recent months.

Still, analysts cautioned against setting expectations too high.

Wachovia economist Anika Khan said in a note to clients that "the gain is not expected to stick" and that non-residential spending "will likely post declines well into 2010."

Meanwhile, the National Association of Realtors said there is more evidence that first-time home buyers are wading into the market. Its pending-home-sales index, an indicator of future sales activity, rose by 3.2 percent in March. It is 1.1 percent higher than its March 2008 level.

Economists have been pointing to signs that the housing market, while still weak, may have hit its bottom. It will take several months for the market to gain momentum, Lawrence Yun, the Realtor group's chief economist, said in a statement.

"We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around," Yun said.

The news helped boost shares of home builders. Pulte Homes jumped 9 percent, to $12.16. D.R. Horton was also up 9 percent, to $13.49, while Lennar rose 9 percent, to $10.34.

Financial stocks rose nearly 6 percent yesterday in heavy trading. Wells Fargo shot up 24 percent, to $24.25, after billionaire investor Warren E. Buffett expressed confidence that it would emerge "better than ever." Energy and transportation stocks also were buoyed by the day's economic optimism as investors bet that they would be among the first sectors to reap the benefits of recovery.

Investors are still anxiously awaiting the results of the government's "stress test" to determine the health of the nation's banks. That report is due Thursday after the markets close. New unemployment data slated for release Friday could also dampen the market's enthusiasm.

"There's a momentum to the rally that's hard to ignore," said Dean Curnutt, president of Macro Risk Advisors. But, he added, "we're not convinced that we're far enough along to have a longer-term bullish outlook."

Staff writers Annys Shin and Renae Merle contributed to this report.