Stocks Inch Higher on Housing Data, GM Bondholder Offer

U.S. stock markets closed higher today after swinging in and out of negative territory most of the day as a government bond auction went off better than feared, oil prices hit a new six-month high and investors digested mixed reports on the housing market and economy.

The blue chip Dow Jones industrial average closed up 1.25 percent, or 104 points, while the broader Standard & Poor's 500-stock index was up 1.5 percent, or 14 points. The tech-heavy Nasdaq was up 1.2 percent, or 21 points.

The upward momentum following news that a $26 billion government auction of seven-year Treasury notes had received a healthy amount of bidders. Yesterday, an auction for four-week bills and five-year notes, both for $35 billion, also received good demand but was followed by selling of the notes as investors grew concerned that government officials will need to sell significantly more to fund their financial recovery plans.

Today demand remained strong for seven-year notes following the auction, said Brian Edmonds, head of interest rate trading at Cantor Fitzgerald, one of 15 primary dealer brokers that are required to bid at Treasury auctions.

"We are seeing buying off the bottom, the seven-year auction has done better in a sense," he said. "Longer-term we have the same issues: increasing supply, the Fed expanding its balance sheet and we have deficit spending that is going to continue."

The swings also came as benchmark crude for July delivery settled at $65.08 a barrel today on the New York Mercantile Exchange.

Other reports showed that new home sales remain lackluster and foreclosures are soaring but purchases of big-ticket items by businesses are up and new jobless claims are down.

The Mortgage Bankers Association reported that a record 12 percent of U.S. homeowners are behind on their mortgage or are in foreclosure. The report indicated that the foreclosure rate on prime, fixed-rate loans has doubled over the past year, and has overtaken risky sub-primes as the largest share of new foreclosures.

The market also factored in data that showed new home sales were flat in April. Separate reports on weekly jobless claims and orders of durable goods showed that the pace of the recession might be moderating. Yesterday stocks fell as General Motors inched closer to bankruptcy and investors grew increasingly concerned about the growing size of the federal deficit as the government continues to ramp up its debt load as it pays for its financial rescue programs.

The Commerce Department reported this morning that new-home sales were up 0.3 percent compared with March, to an annualized rate of 352,000 sales, and were down 34 percent compared with April 2008. Meanwhile, median prices fell to $206,700, in April, compared with $246,400 a year ago.

"We're going to bounce along the bottom here for a few months and that is exactly what's happening. We're virtually unchanged from last month," said David Crowe, chief economist for the National Association of Home Builders.

Builders have cut production and prices as they compete against a backlog of foreclosed properties on the market that are selling at significant discounts. But until more buyers venture back into the market, prices will continue to fall and sales will remain slow, analysts have said.