Stocks Rally on Improved Recovery Prospects

The Dow surges as data showing the economy's upswing is gaining traction trumps eurozone contagion fears. Gregg Greenberg has The Real Story.
By Shanthi Bharatwaj ,

NEW YORK (

TheStreet

) -- Stocks jumped more than 2% Wednesday as a burst of positive economic data reassured investors that the economic recovery is on track.

The

Dow Jones Industrial Average

finished 249 points, or 2.3%, to 11,254 after soaring as high as 11,276 shortly before the closing bell sounded. The

S&P 500

jumped 25 points, or 2.1%, to 1206, while the

Nasdaq Composite

gained 51 points, or 2.1%, to close at 2549.

Sentiment was extremely positive with 77% of the stocks listed on the New York Stock Exchange moving higher. All 30 components of the Dow rose, with

Home Depot

(HD) - Get Report

,

United Technologies

undefined

,

Alcoa

(AA) - Get Report

and

Microsoft

(MSFT) - Get Report

posting the strongest percentage gains.

Stocks got off to a strong start on Wednesday, initially taking their cue from better-than-expected U.S. private-sector job growth in November and positive Chinese manufacturing data.

The U.S. private sector

added 93,000 jobs in November

, according to Automatic Data Processing's employment report Wednesday. The increase exceeded Wall Street's expectations for job growth of 58,000. ADP also upwardly revised October's job gains to 82,000 from 43,000 previously.

Chris Low, an economist at FTN Financial, said the number was the best the ADP has reported this year but remains cautious in his job outlook. "Jobless claims have improved,

partly because retailers hired earlier this year for the holiday season. I think we will see some of that on Thursday's jobless claims report and on Friday's report. But this has been largely because of a shift in retail activity from November into December and the trend could reverse in early January."

Later in the day the

Federal Reserve

reported an improvement in economic activity in most regions in its Beige Book survey, saying consumer spending and expectations for the holiday shopping season were generally positive.

In addition Goldman Sachs raised its outlook for the U.S. economy for 2011, saying it expects GDP growth to improve to 2.7% next year from 2% previously.

The spate of good news about the U.S. economy helped overshadow concerns about the European debt crisis, but investors were still paying attention to events overseas.

The European Central Bank President Jean Claude Trichet suggested Wednesday that the bank could buy bonds issued by countries within the European Union. That and a stronger than expected response to the Portugal's €500 million euro auction of one-year Treasury bills helped ease some jitters about the European financial crisis.

Reports later in the session that the United States plans to increase its commitment to the International Monetary Fund to stabilize the European financial situation also helped to abate concerns.

Investors are gearing up for a "Santa Claus Rally", which refers to the historical trend of a market rally in December heading into Christmas. But global concerns loom large and uncertainties surrounding taxes and unemployment benefits persist.

"If we close above 1200 on the S&P, I think green lights are flashing for this market to have a good December," Peter Cardillo of Avalon Partners said, adding, "Despite the better economic numbers, there are still a lot of worries out there and the big challenge will be whether the Bush tax cuts will be extended."

In other economic news, the Labor Department upwardly revised third-quarter productivity to 2.3%, from its previous read of 1.9%, which was nearly in line with market expectations for an upward revision to 2.4%, That compares with a decline of 1.8% in the second quarter. Unit labor costs were downwardly revised to a dip of 0.1%, compared with the 0.5% decline that economists had been expecting, according to Briefing.com. The Labor Department initially reported a 0.1% drop in third-quarter unit labor costs after growth of 1.3% in the second quarter.

The Institute for Supply Management said

manufacturing activity strengthened slightly in November as the ISM index rose to 56.6, compared with expectations for a reading of 56.5, according to Briefing.com. That compares to October's level of 56.9.

The Commerce Department said construction spending rose 0.7% after similar growth in September. Economists had been expecting an increase of 0.5%, according to Briefing.com.

In other news, the

White House's deficit reduction commission outlined a six-point plan to cut deficits by $4 trillion through 2020. The 18-member commission plans to hold a vote on it Friday.

Conglomerates saw the biggest gains during Wednesday's session, with many industrials hitting fresh 52-week high including

Caterpillar

(CAT) - Get Report

,

Cummins

(CMI) - Get Report

and

Honeywell

(HON) - Get Report

. Energy, basic materials and capital goods stocks also put in strong performances while utilities saw the mildest gains.

Commodity stocks also performed well on the back of Chinese manufacturing data and a weaker dollar.

Freeport-McMoRan Copper & Gold

(FCX) - Get Report

saw its shares gain 4.1% to $105.37,

Rio Tinto

(RIO) - Get Report

jumped 3.7% to $65.60 and

BHP Billiton

(BHP) - Get Report

traded 3.7% higher at $85.54.

Shares of

State Street

(STT) - Get Report

were up by 4% to $44.80 on the financial holding company's late Tuesday announcement that it was cutting 1,400 jobs, or roughly 5% of its workforce.

AIG (AIG) - Get Report

paid a premium on its return to the credit markets with its first bond sale since it was rescued by the U.S. government two years ago. Shares were up 2.4% to $42.28.

Ford

(F) - Get Report

said vehicle sales rose 24% in November, ahead of estimates. The stock was up 3.3% to $16.44.

General Motors

(GM) - Get Report

said vehicle sales rose 12%. Shares rose 1.7% to $34.78.

Harman International

(HAR)

jumped 6% to $46.20 after JPMorgan analyst upgraded the audio systems maker to overweight and raised its price target to $52.

Homebuilder stocks were rising after construction spending unexpectedly rose.

D.R. Horton

(DHI) - Get Report

,

Pulte Homes

(PHM) - Get Report

and

Lennar

(LEN) - Get Report

surged by 5%, 4.5% and 3.7% respectively.

The Energy Information Administration said crude oil inventories gained 1.1 million barrels in the week ended Nov. 26. The increase disappointed expectations for a drawdown of 1.5 million barrels, according to a Platts survey of analysts. Late Tuesday, the American Petroleum Institute said crude stockpiles declined by 1.14 million barrels.

The January crude oil contract was up by $2.64 to settle at $86.75 a barrel. The most actively traded February gold contract gained $2.20 to $1,388.3 an ounce.

The dollar traded lower against a basket of currencies with the dollar index down by 0.7%, and the benchmark 10-year Treasury note weakened 1 14/32, strengthening the yield to 2.966%.

.

The FTSE in London rose 2.1%, and the DAX in Frankfurt soared 2.7%. Hong Kong's Hang Seng added 1.1%, and Japan's Nikkei gained 0.5%.

--Written by Melinda Peer and Shanthi Bharatwaj in New York

.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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