Updated from 3:59 p.m. EST

A trio of economic reports hasn't convinced the choir on Wall Street that conditions are improving.

"You would have thought the two pieces of positive data -- durable goods orders and new home sales -- would have really gotten the market going," said Todd Clark, head of listed trading at W.R. Hambrecht. "But the main concern is consumer spending. So, the rise in jobless claims could prevail over the market."

The reaction was far from negative, however, and after meandering through most of the day the averages shot up in the session's final minutes. The

Dow Jones Industrial Average closed up 118 points, or 1.2%, to 9829, while the

Nasdaq gained 45 points, or 2.4%, to 1933. The

S&P 500 rose 11 points, or 1%, to 1140.

Durable goods orders rose 12.8% to $184.8 billion in October, the largest gain on record, with a jump in spending on defense-related items. The data have economists cautiously optimistic about stabilization in the manufacturing sector -- the hardest hit area of the economy in this recession.

"The durable goods report is encouraging, with respect to a bottom in manufacturing," said Paul Kasriel, chief economist at Northern Trust. "But you can't be too much on one month's number."

Shipbuilding

New orders for defense capital goods increased 206.3% to $18.4 billion in October. "Military orders are expected to continue for at least the next couple of months," said Christopher Low, chief economist at First Tennessee Capital Market. "It's one area of strength we can count on."

The surge in military spending has lifted stocks in the defense industry: Since Sept. 10,

Northrop Grumman

(NOC) - Get Report

is up 14.5%, while

General Dynamics

(GD) - Get Report

is ahead 8%.

What remains uncertain in the near-term is whether or not the gains in civilian orders can keep up. Non-defense aircraft and parts orders increased 49% to $5.4 billion, for example. "But with national carriers on the brink of bankruptcy," said Low, "a drop in those orders is a risk going forward."

In a separate report, new home sales increased 0.2% to an annual pace of 880,000 units in October, from a revised 878,000 in September. The number beat forecasts that the sales rate would fall to 853,000 units. Sales of new homes account for roughly 16% of all houses sold.

The housing market has been the pillar of strength for the economy in the current downturn. As reported earlier this week, sales of preowned houses rose 5.5% to an annual rate of 5.17 million units in October. That resilience is important, because home sales are a gauge for consumer spending.

Working Weak

First-time unemployment claims last week increased by 54,000, the Labor Department said.

IBM

(IBM) - Get Report

, for one, said today that it plans to lay off 1,000 workers in its semiconductor unit.

"There is a precedent for jobless claims data around the holidays to be off the mark," said Low. "I think you have to take the number with a grain of salt." As a positive sign, the four-week moving average of initial jobless claims fell to 454,000 from 456,000 a weak earlier.

Still, mounting job losses remain a threat to consumer spending. On Tuesday, the Conference Board, a private research firm, said its consumer confidence index fell to its lowest level in 7 1/2 years.

"It's still ambiguous if the labor market is turning," said Kasriel of Northern Trust. "I think there's further weakness to be endured."