The stock market ended a three-day losing streak Monday, closing broadly higher as a weaker dollar and upbeat home sales numbers encouraged investors to take on more risk.
Major stock indexes soared more than 1 percent, including the Dow Jones industrials, which rose 133 points to a 13-month high. Volume was light as Thanksgiving approached, and that likely padded some of the market's advance.
Investors who fled to the safety of the dollar and Treasurys in recent days found plenty of reasons to return to stocks Monday. The day's developments pointed to two key trends, a recovering economy and interest rates that are expected to stay low:
- The dollar resumed its long slide, sending prices for commodities including gold and oil higher and in turn, the stocks of companies that produce them.
- The National Association of Realtors reported that October home sales rose more than 10 percent revived investors' optimism after disappointing data on the housing industry last week raised concerns about the strength of the economic recovery.
- Charles Evans, head of the Federal Reserve Bank of Chicago, was quoted as saying he saw little risk that the economy would slide back into recession, although unemployment is unlikely to fall until next summer. And James Bullard, president of the Federal Reserve Bank in St. Louis, said the U.S. Fed should continue to buy mortgage-backed securities after the program is supposed to expire in March. That would continue to keep interest rates low.
Meanwhile, bond prices retreated as investors regained their appetite for risk.
Low interest rates and the resulting slide in the dollar have been big drivers behind the stock market's eight-month rally. Low interest rates allow investors to borrow cheaply and buy assets like stocks and commodities that have the potential to earn higher yields than cash.
Investors were buying Monday on somewhat contradictory forces. The strength in housing is a sign of an improving economy, which could argue in favor of raising rates, while the dollar's weakness points to rates remaining low. Analysts say investors who still have plenty of available cash are primed to buy, and so the market may also be rising on its own momentum.
Phil Orlando, chief equity market strategist at Federated Investors, said some investors will look for dips in the rally as a way to get into the market, not wanting to end the year without participating in some of the big gains stocks have made.
"Bearish managers are sweating bullets that they're not going to be able to get that cash in the market and they need to do that," he said. "That is why any pullback we've seen this year has been met with a wave of cash that has pushed stocks up higher."
At the same time, many portfolio managers have cooled their buying, not wanting to risk losing the big returns they've made since stocks began rallying in March. Those opposing forces are likely to result in choppy trading over the next few weeks, analysts said, which will be exacerbated by light volume as the holidays approach.
The Dow rose 132.79, or 1.3 percent, to 10,450.95, after losing 120 points over the previous three days. It was the Dow's highest close since Oct. 2, 2008.
The Standard & Poor's 500 index rose 14.86, or 1.4 percent, to 1,106.24, while the Nasdaq composite index rose 29.97, or 1.4 percent, to 2,176.01. The index is up 63.5 percent from a 12-year low in March.
Four stocks rose for every one that fell on the New York Stock Exchange, where volume came to a low 979.9 million shares, compared with 1.1 billion Friday.
The ICE Futures U.S. dollar index, a measure of the dollar against other major currencies, fell 0.7 percent. As the dollar fell, gold prices surged to a new high of $1,174 an ounce. Oil rose 9 cents to $77.56 a barrel on the New York Mercantile Exchange.
The spike in commodities lifted energy companies and materials producers. Chevron Corp. rose $1.97, or 2.6 percent, to $78.74. Weyerhaeuser Co. gained $1.25, or 3.3 percent, to $39.11.
Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.36 percent from 3.37 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.02 percent from 0.01 percent.
The yield on the three-month bill briefly turned negative last week as worries about the economy took hold and investors retreated to safe havens like the dollar and government debt as they sold stocks.
Investors wanting to lock in profits for the year are willing to earn little to park their cash somewhere safe.
"It's not a time for taking chances," said Quincy Krosby, market strategist at Prudential Financial.
The National Association of Realtors said home sales rose 10.1 percent in October to the highest level in two and a half years, spurred by a tax credit for first-time homebuyers. Analysts had been expecting a 1.4 percent increase in sales. The credit, due to end at the end of the month, has been extended into 2010.
"You could be completely cynical and say this market is moving up today because volume is low and the dollar is weak, but I would have to add that we're getting confirmation on the sustainability of the economic recovery by the actual fundamentals," Krosby said, referring to the housing report.
In other trading, the Russell 2000 index of smaller companies rose 10.13, or 1.7 percent, to 594.81.
Overseas, Britain's FTSE 100 rose 2 percent, Germany's DAX index soared 2.4 percent, and France's CAC-40 jumped 2.3 percent. Markets in Japan were closed for a holiday.