Signs of healing in manufacturing lift stocks

The stock market is extending its summer rally as August brings more upbeat economic data.

Positive reports on manufacturing, housing and banking sent stocks sharply higher Monday, hurling the Standard & Poor's 500 index past 1,000 for the first time since early November. All the major indexes rose more than 1%.

The gains were spread across industry groups. The manufacturing data and rising commodity prices helped to lift energy and material stocks, while stronger earnings reports from European banks lifted shares of financial companies.

Ford hit a new high for the year as the company's sales rose for the first time in nearly two years. The federal government's popular "cash-for-clunkers" program is expected to boost overall auto sales to their highest level of the year.

The market had already started off on a positive note following reports showing stronger industrial activity in China, Britain and Europe.

Stocks surged last month, reigniting a spring rally that had fizzled in June amid growing doubts that the economy was on solid footing. The Dow Jones industrials recorded its best July in 20 years, soaring 725 points, or 8.6%. Stocks regained momentum as an increasing number of economic and corporate earnings reports suggested investors' bets had been well-founded.

"At this point through earnings season, patterns have been firmly established," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors. "It would take a lot to derail the emerging optimism."

In other signs of investors' growing confidence, safe-haven assets like Treasurys and the U.S. dollar fell, while oil and other commodities prices surged.

The market was pleased by a report showing that manufacturing activity slowed during July at the slowest pace in nearly a year.

The Institute for Supply Management said its manufacturing index rose to a better-than-expected 48.9 from 44.8 in June. A reading above 50 indicates growth.

"We're past the worst of it on the manufacturing side, and we could even be getting back to growth by the third quarter of this year," said Jill Evans, co-portfolio manager at Alpine Dynamic Dividend Fund.

Meanwhile, the Commerce Department reported a jump in residential building during June that lifted overall construction spending for the second time in three months. Analysts had expected a 0.5% drop. The report provided new evidence that the housing sector may be recovering.

Positive reports from European banks eased concerns about the impact that the credit crisis and recession have had on the global banking system. Barclays said its first-half net profit increased 10% on stronger earnings from its investment banking division. HSBC reported a 57% decline in its first-half profit, but results were better than anticipated.

Among companies reporting earnings Monday, health insurer Humana'sHUM profit rose 34% on higher premiums, and Tyson FoodsTSN said income soared on strong sales of chicken. Marathon Oil'sMRO profit fell 47% from a year ago, when oil prices were twice as high, but the results still exceeded expectations.

Overall, the recent earnings reports have shown that companies aren't losing money at the rapid pace they were last fall and earlier this year. Though there are concerns that the aggressive cost-cutting measures businesses have undertaken to boost profits are not sustainable, several upbeat outlooks from companies like IntelINTC and CaterpillarCAT suggest business conditions are improving.

Still, the market is keeping a close watch on unemployment levels and consumer spending, as well as rising commodity prices and interest rates that could outpace the economy's recovery.

In other trading, the dollar and bond prices both fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, surged to 3.65% from 3.48% late Friday.

Oil, gold and other commodities rose. Commodities traders were heartened by news that manufacturing in China and Europe is expanding, a sign of support for industrial materials like copper. Copper prices, which have nearly doubled this year thanks in large part to unrelenting demand from China, hit a 10-month high.

Light, sweet crude soared $2.42 to $71.87 a barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies rose 5.92, or 1.1%, to 562.63.

Nearly four stocks rose for every one that fell on the New York Stock Exchange where volume came to 641.1 million shares, compared with 553.8 million at the same time on Friday.

Overseas, Hong Kong's Hang Seng index rose 1.1%, while Japan's Nikkei stock average slipped 0.04%. In afternoon trading, Britain's FTSE 100 jumped 1.6%, Germany's DAX index rose 1.8%, and France's CAC-40 rose 1.5%.