updated 3/2/2006 7:20:47 AM ET 2006-03-02T12:20:47

Stocks rebounded Wednesday as reports of a surge in consumer spending and improving health in the manufacturing sector restored investors’ confidence in the economy.

Major Market Indices

Stocks regained some of the ground lost in Tuesday’s sharp drop after the Commerce Department said personal spending shot up by 0.9 percent in January, the strongest gain in six months. Incomes rose by a solid 0.7 percent, the best showing since September, with the gains attributed to a variety of factors including cost-of-living adjustments for Social Security benefits and the new prescription drug benefit for Medicare recipients. Still, spending gains outpaced income increases.

Strong data from the manufacturing sector bolstered investors’ moods, with the Institute for Supply Management, a private research group, reporting that manufacturing expanded at a faster-than-expected rate in February.

Investors shrugged off the slowest gain in the construction sector in seven months. Construction spending rose by a tiny 0.2 percent in January, the latest indication in a stream of recent data showing a cooling housing sector.

“On the whole, economic data was pretty reasonable and the market is responding as you might expect,” said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.

The Dow rose 60.12, or 0.55 percent, to 11,053.53. The Dow fell 104.14 points, or 0.94 percent, on Tuesday in response to mixed economic data and downbeat comments from Google Inc.’s chief financial officer.

Broader stock indicators also advanced. The Standard & Poor’s 500 index rose 10.58, or 0.83 percent, to 1,291.24, and the Nasdaq composite index rose 33.25, or 1.46 percent, to 2,314.64.

Investors are hypersensitive to economic news as they watch for changes in Federal Reserve interest rate strategy and try to discern which direction the market is heading, said Richard E. Cripps, chief market strategist for Stifel Nicolaus, a broker based in St. Louis. Their biggest question is: Will the bear market return or are stocks on their way to an outright bull market?

Stocks rose on Wednesday’s data because it was, for the most part, slightly better than expected; while stocks fell Tuesday because the data was slightly worse than expected, he said.

“We’re really splitting hairs,” Cripps said.

Bonds fell as stocks rose, with the yield on the 10-year Treasury note increasing to 4.58 percent from 4.55 percent late Tuesday. The U.S. dollar rose against other major currencies. Gold prices were higher.

Crude oil futures were higher . A barrel of light crude settled at $61.97, up 56 cents, in trading on the New York Mercantile Exchange.

General Motors Corp. fell 41 cents to $19.90 after it said U.S. auto sales declined in February. Fitch Ratings also further downgraded some of its bonds, saying the downgrade “reflects lack of substantive progress on reducing GM’s cash operating costs, which Fitch believes will result in negative cash flows persisting through 2007.”

German automaker DaimlerChrysler AG rose $1.14 to $56.61 after it posted a 4 percent rise in U.S. vehicle sales for February on modest improvement at its larger Chrysler Group and a jump in sales at luxury brand Mercedes-Benz.

Google rose $2.18 to $364.80, regaining a sliver of Tuesday’s $27.76 loss, which followed comments from CFO George Reyes that growth was slowing at the online search company.

Medco Health Solutions Inc., one of the nation’s biggest pharmacy benefits management companies, rose $3.56 to $59.28 after it reported fourth-quarter earnings rose 33 percent. Volume from new clients and higher prices charged by pharmaceutical manufacturers on brand-name drugs helped its results.

The Russell 2000 index of smaller companies rose 11.71, or 1.6 percent, to 742.35.

Advancing issues led decliners by more than 2 to 1 on the New York Stock Exchange, where volume was 1.63 billion shares, down from 1.88 billion shares Tuesday.

Overseas, Japan’s Nikkei stock average fell 1.49 percent. Britain’s FTSE 100 gained 0.91 percent, Germany’s DAX index rose 1.22 percent, and France’s CAC-40 climbed 1.14 percent.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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