Stocks advance after mixed economic reports

The stock market's third quarter started on a positive note after some reassuring data on manufacturing and the housing market.

Stocks gained following a report showing more stable manufacturing activity in the United States. Investors also cheered a fourth straight monthly rise in pending home sales in May. The National Association of Realtors said its seasonally adjusted index of pending home sales edged up to 90.7 in May from 90.6 in April. European markets had risen earlier following similarly upbeat data on manufacturing in that region.

At the close of trading Wednesday, the Dow Jones industrial average was up 57.06, or 0.68%, to 8,504.06. In the broad market, the Standard & Poor's 500 index rose 4.01, or 0.44%, 923.33, and the Nasdaq composite index rose 10.68, or 0.58%, 1,845.72.

Some of Wednesday's bounce, though, may simply be due to stocks appearing cheaper following a big sell-off Tuesday and as investors look to put money to work as the new quarter begins.

Stocks had dropped Tuesday on a disappointing drop in consumer confidence but still ended the second quarter with significant gains, giving the S&P 500 index its best quarter in a decade.

"Some of the buying that wasn't done yesterday is being done today," said Richard Cripps, chief market strategist for Stifel Nicolaus. "I'm a little surprised. There isn't a lot of convincing volume here to read too much into this."

Not all the new economic data was upbeat. Construction spending fell in May by more than the market expected, and the private sector lost more jobs in June than expected. The most eagerly awaited report of the week will come on Thursday, when the Labor Department releases its June jobs report.

Scott Fullman, director of derivatives investment strategy for WJB Capital Group, said the employment report — along with thin, pre-holiday trading volumes — could make for a volatile market Thursday. U.S. markets are closed Friday in observance of the Independence Day holiday.

Nonetheless, investors remain optimistic that the economy will be in better shape by the end of the year. "The belief is the worst is behind us," Fullman said.

Bond prices were mixed on Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.55% from 3.54% late Tuesday.

In corporate news, CitigroupC sold NikkoCiti Trust and Banking Corp., part of its Japanese business, to Nomura Trust and Banking for $196 million. The New York bank, which has received $45 billion in government aid, has been selling assets and trying to streamline operations in an effort to return to profitability.

And in an upbeat earnings report, General Mills GIS said its fiscal fourth-quarter profit nearly doubled. The maker of Cheerios cereal and Yoplait yogurt also offered earnings guidance for 2010 above analysts' expectations.

Analysts say earnings reports coming in the next few weeks will largely determine which way the market heads in the third quarter. Investors are especially eager to hear what companies have to say about business prospects in the second half of the year.

Markets have pulled a stunning recovery since hitting 12-year lows in early March. All the major indexes rose by double-digit percentage points in the second quarter, while the S&P 500 index and the Nasdaq composite index finished higher for the first six months of 2009.

The major indexes have pulled back from multi-month highs in mid-June amid growing doubts about the strength of the economy's recovery.

But Eric Ross, director of research at Canaccord Adams, said he doesn't think investors have fully appreciated how much the economy has stabilized.

"They are waiting for another leg down on the market, and I'm not sure we're going to see it," Ross said. "There is too much money on the sidelines."

The dollar fell against other major currencies, while gold prices rose.

Light, sweet crude fell 58 cents to $69.31 a barrel on the New York Mercantile Exchange.

Overseas, Japan's Nikkei stock average fell 0.2%. Britain's FTSE 100 rose 2.2%, Germany's DAX index rose 2%, and France's CAC-40 jumped 2.4%.