Markets Rally on Signs of Healing

The housing and manufacturing sectors remain weak but are showing some improvement, according to data released Monday, the latest signs of stabilization in the economy.

The data helped Wall Street continue a three-week rally, spurred by investor optimism that the worst of the recession is over. The Standard & Poor's 500-stock index, a broad market measure watched by professional traders, climbed 1.53 percent Monday to 1002.63 -- its first close above 1,000 since early November.

The Dow Jones industrial average was up 1.25 percent, or 114.95 points, to close at 9286.56, while the tech-heavy Nasdaq climbed 1.52 percent, or 30.11 points, to 2008.61. That marked the first time since October that the Nasdaq has closed above 2000.

All of the major indexes are trading at their highest levels this year and are up more than 40 percent since reaching a low in March. The rally helped steer investors Monday away from long-term government bonds, a traditional safe haven during market turbulence. But some traders remain nervous that a bumpy economic recovery could send stocks tumbling again.

"What we're going into is the very initial phases of a recovery," said Brian Bethune, chief U.S. financial economist for IHS Global Insight. "Clearly we're at a turning point now."

Investors focused Monday on a series of better-than-expected economic reports. Construction spending climbed 0.3 percent in June from the previous month, according to a Commerce Department report. Analysts had expected spending to decline 0.5 percent.

The uptick included a 0.7 percent increase in residential construction spending, another indicator that the housing sector could be on the mend. New-home sales spiked last month, and home prices have begun to stabilize in some parts of the country. While many economists continue to predict that home prices will fall until next year, they have become hopeful that the housing downturn might not be as deep or as long as originally feared.

Still, there are many risks that could hamper a housing sector rebound, including rising unemployment and the threat of foreclosed properties weighing down the market, analysts said.

"If builders start to see improving economic conditions and start to build a lot of homes, there is a risk they could shoot themselves in the foot," said Robert Dye, senior economist at PNC Financial Services Group. "This is not the time to build full speed ahead in anticipation of resurging demand. It's a time to increase building programs carefully and cautiously."

Meanwhile, the Institute for Supply Management, a private trade group, said its manufacturing index rose to 48.9 last month from 44.8 in June. That was a bigger increase than analysts were expecting. Any reading below 50 indicates a contraction. The sector is still shrinking, but at a slower rate, according to the report.

"It would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue," Norbert J. Ore, chairman of the committee that conducts the survey, said in a statement.

The anticipation of an economic rebound has also helped buoy commodity prices with investors betting that global demand could strengthen soon for goods such as oil. Crude oil prices jumped 3.1 percent to $71.58 a barrel on the New York Mercantile Exchange. That helped lift energy stocks, including ConocoPhillips, which was up 2.93 percent to $44.99.