Stocks swing higher in pre-holiday trade

NEW YORK » Wall Street kicked off the third quarter with a sharp advance yesterday as mild manufacturing and construction data lifted hopes about interest rates and energized investors in light pre-holiday trade.

Stocks saw a solid early start on news of a possible alliance between General Motors Corp. and Nissan Motor Co., although Dow Jones industrial GM slumped ahead of its June sales results. Meanwhile, takeover speculation at Alcoa Inc. left the aluminum maker among the Dow's biggest gainers.

A slowdown in monthly manufacturing activity and construction spending was unexpected but nonetheless reinforced views that a moderating economy would keep the Federal Reserve from raising interest rates much further, as did a drop in prices paid by producers.

But with many traders out of the office ahead of Independence Day, analysts said the light trading volume likely exaggerated stocks' gains. The stock markets closed at 7 a.m. Hawaii time yesterday and will be closed today.

"There may be some follow-through reaction" tomorrow to the economic reports, said Russ Koesterich, senior portfolio manager at Barclays Global Investments. However, "with this type of volume, you can't read much into the market's reactions."

At the close, the Dow rose 77.80, or 0.7 percent, to 11,228.02. On Friday, the Dow fell 40 points as money managers locked in profits from its 217-point rally Thursday.

Broader stock indicators also advanced. The Standard & Poor's 500 index gained 9.99, or 0.79 percent, to 1,280.19, and the Nasdaq composite index surged 18.34, or 0.84 percent, to 2,190.43.

Bonds were down, although they recouped some of their earlier losses, with the yield on the 10-year Treasury note edging up to 5.15 percent from 5.14 percent late Friday. The U.S. dollar gained on the Japanese yen.

Although yesterday's economic news helped support views that interest rates may have been hiked enough to slow the economy and contain inflation, the Labor Department's report on employment and wages Friday is more likely to be market-moving, analysts said.

"If all we do is look at this data as it pertains to the Fed, this is good news," said Art Hogan, chief market analyst for Jefferies & Co. "But prices paid and construction spending are not the most important pieces of data right now. Nonfarm payrolls on Friday will be what attracts attention."

The Institute for Supply Management's June manufacturing index fell 0.6 points to 53.8, while economists were forecasting a rise to 55. Although the prices paid index slid 0.5 points to 76.5, that came in ahead of forecasts for 75.