updated 5/2/2007 9:04:19 AM ET 2007-05-02T13:04:19

Investors resumed their buying spree on Wall Street Tuesday, driving stocks higher after a bid for media company Dow Jones & Co. revived enthusiasm about takeover activity.

Major Market Indices

The Dow Jones industrial average reached another record close, its 38th since last October, as big company stocks benefited from the turnaround.

Earlier in the session, stocks wavered on mixed economic data that showed strength in manufacturing but a wilting housing market and weak car sales. After April’s big advance, investors were wary that the current economy wouldn’t justify another move higher on Wall Street.

But the caution dissipated after Dow Jones, which publishes The Wall Street Journal, confirmed that it received an unsolicited bid from Rupert Murdoch’s News Corp. to buy the company for $5 billion , or $60 a share.

“The market kind of just took off from there,” said Todd Leone, managing director of equity trading at Cowen & Co. News of the bid boosted media companies and publishers in particular, but also encouraged buying in other sectors, too, as it reaffirmed the ongoing trend of surging takeover activity in corporate America despite an economic slowdown. “It’s money pouring into the market,” Leone said.

According to preliminary calcuations, the Dow industrials rose 73.23, or 0.56 percent, to 13,136.14, after falling as low as 13,041.30 in earlier trading.

Broader stock indicators also turned higher after falling for much of the session. The Standard & Poor’s 500 index rose 3.93, or 0.27 percent, to 1,486.30, and the Nasdaq composite index rose 6.44, or 0.26 percent, to 2,531.53.

Bond prices dropped after the manufacturing data, and the yield on the benchmark 10-year Treasury note rose to 4.64 percent, up from 4.62 late Monday.

After investors heard that Dow Jones was a takeover target, the company’s stock surged $20.95, or 58 percent, to $57.28. News Corp., which owns the Fox broadcast network among many other media properties, fell $1.01, or 4.2 percent, to $22.99.

Other media stocks rose as well. New York Times Co. rose $1.18, or 5 percent, to $24.58; Journal Register Co. jumped 42 cents, or 7 percent, to $6.29; and Reuters Group PLC’s U.S. shares climbed $2.19, or 3.8 percent, to $59.43.

Adding to the takeover buzz was a report that Microsoft Corp. is considering buying online advertising company 24/7 Real Media. 24/7 Real Media rose $2.02, or 20 percent, to $11.97, while Microsoft rose 46 cents to $30.40.

Though takeover fervor gave stocks a boost Tuesday, investors will be closely watching upcoming economic data to decide whether to tread further into record terrain or restrain their buying. April saw the biggest percentage gain in the Dow since December 2003.

“I would expect we spend some time in May digesting that move,” said Arthur Hogan, chief market analyst at Jefferies & Co.

A stronger-than-expected reading on the Institute for Supply Management’s April manufacturing index failed to spark buying early Tuesday. Robust manufacturing activity is good for many U.S. companies, but it reduces the chance that the Federal Reserve will cut interest rates to boost spending — especially amid rising costs, which the ISM’s report described.

Other data Tuesday evinced weakness in the housing and auto sectors. The National Association of Realtors said pending sales of existing homes fell by 4.9 percent in March to their lowest point in four years, while Ford Motor Co., Toyota Motor Corp. and General Motors Corp. reported declines in U.S. sales for April. DaimlerChrysler reported a slim rise.

Ford rose a penny to $8.05; DaimlerChrysler rose 48 cents to $80.99; Toyota’s U.S. shares rose 11 cents to $121.15; and GM rose 23 cents to $31.46.

But the auto sales overall weren’t as bad as many were expecting, and the tepid housing market is nothing new, so investors reacted little to the data.

“Unless you’ve been living underneath a rock, you know residential real estate is hitting a soft patch here,” Hogan said.

Earnings reports were mixed Tuesday.

Procter & Gamble Co., one of the 30 components of the Dow industrials and maker of Crest toothpaste and Pampers diapers, reported a 14 percent rise in its fiscal third-quarter profit, but the profit failed to top expectations. Procter & Gamble fell $1.44, or 2.2 percent, to $62.96.

Archer Daniels Midland Co.’s fiscal third-quarter earnings fell short of Street forecasts, with the country’s largest ethanol producer citing higher corn costs. ADM fell $2.10, or 5.4 percent, to $36.60.

Circuit City Stores Inc. said it expects to report steep first-quarter losses. The electronics retailer dropped 93 cents, or 5.3 percent, to $16.52.

The Russell 2000 index of smaller companies rose 1.68, or 0.21 percent, at 816.25.

Advancing issues outnumbered decliners by 6 to 5 on the New York Stock Exchange, where volume came to 1.78 billion shares, up from 1.71 billion at the same point Monday.

Crude oil prices fell $1.31 to settle at $64.40 on the New York Mercantile Exchange ahead of the U.S. government’s weekly inventory report Wednesday.

Overseas, Japan’s Nikkei stock average fell 0.72 percent. Britain’s FTSE 100 was down 0.46 percent, Germany’s DAX index was up 0.42 percent, and France’s CAC-40 was up 0.49 percent.

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