Stocks rebound on spending report

NEW YORK » Stocks rebounded yesterday as reports of a surge in consumer spending and improving health in the manufacturing sector restored investors' confidence in the economy.

Stocks regained some of the ground lost in Tuesday's sharp drop after the Commerce Department said personal spending shot up by 0.9 percent in January, the strongest gain in six months. Incomes rose by a solid 0.7 percent, the best showing since September, with the gains attributed to a variety of factors including cost-of-living adjustments for Social Security benefits and the new prescription drug benefit for Medicare recipients. Still, spending gains outpaced income increases.

Strong data from the manufacturing sector bolstered investors' moods, with the Institute for Supply Management, a private research group, reporting that manufacturing expanded at a faster-than-expected rate in February.

Investors shrugged off the slowest gain in the construction sector in seven months. Construction spending rose by a tiny 0.2 percent in January, the latest indication in a stream of recent data showing a cooling housing sector.

The Dow rose 60.12, or 0.55 percent, to 11,053.53. The Dow fell 104.14 points, or 0.94 percent, on Tuesday in response to mixed economic data and downbeat comments from Google Inc.'s chief financial officer.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 10.58, or 0.83 percent, to 1,291.24, and the Nasdaq composite index rose 33.25, or 1.46 percent, to 2,314.64.

Investors are hypersensitive to economic news as they watch for changes in Federal Reserve interest rate strategy and try to discern which direction the market is heading, said Richard E. Cripps, chief market strategist for Stifel Nicolaus, a broker based in St. Louis. Their biggest question is: Will the bear market return or are stocks on their way to an outright bull market?

Stocks rose on yesterday's data because it was, for the most part, slightly better than expected; while stocks fell Tuesday because the data were slightly worse than expected, he said.

"We're really splitting hairs," Cripps said.

Bonds fell as stocks rose, with the yield on the 10-year Treasury note increasing to 4.59 percent from 4.55 percent late Tuesday. The U.S. dollar rose against other major currencies.

Crude oil futures were higher. A barrel of light crude settled at $61.97, up 56 cents, in trading on the New York Mercantile Exchange.