Stocks extend their rally a bit after report on service sector

NEW YORK -- Stocks extended their advance a bit Wednesday, following a better-than-expected reading on the service sector of the economy.

Stocks rose following the Institute for Supply Management's report that the service sector contracted at a slower pace in January than economists had been expecting.

All major stock indexes showed modest gains.

Trading has been erratic in recent days. Investors coming off the market's worst January have been searching for bargains among battered stocks and looking for signs the economy might be bottoming.

The market finished Tuesday with a gain, sending major indexes up more than 1%, thanks to reassuring data about pending home sales and better-than-expected earnings reports from companies like drugmakers.

And investors are growing more confident that President Barack Obama's economic stimulus plan, which has already passed the House, will be approved by the Senate. Senators added money for medical research and tax breaks for car purchases.

"The drivers this week are less corporate earnings, and more what we're hearing out of Washington, D.C.," said Arthur Hogan, chief market analyst at Jefferies & Co.

The administration also seems closer to figuring out a plan for the nation's ailing financial services industry, he said.

"There's a lot of buzz about a rescue plan and a fiscal stimulus plan that are proving to be market friendly," Hogan said.

Before the market opened, Kraft posted a fourth-quarter profit drop of 72%, as revenue from the maker of Velveeta, Oreo cookies and Maxwell House coffee could not make up for high restructuring costs.

The media industry reported some downbeat results as well. Time Warner reported a fourth-quarter loss of $16 billion after the conglomerate wrote down the value of its cable, publishing and AOL assets, while Disney late Tuesday announced a 32% decline in profit.

Early Wednesday, bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 2.85% from 2.88% late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, dipped to 0.29% from 0.32%.