Stocks move sharply higher following report showing jump in home sales, as dollar weakens

Weak dollar, home sales data carry stocks higher

NEW YORK — Investors halted stocks’ three-day losing streak Monday, buying across the market on a range of factors including the weaker dollar and better-than-expected home sales numbers.

Major stock indexes soared more than 1 percent in midday trading, including the Dow Jones industrials, which rose more than 120 points.

The National Association of Realtors’ report showing a big jump in October home sales revived investors’ optimism after disappointing data on the housing industry last week raised concerns about the strength of the economic recovery.

Another drop in the dollar pushed prices for gold, oil and other commodities higher, boosting energy and material stocks. A weaker dollar makes commodities cheaper for foreign buyers, and in turn lifts profits for the companies that produce them.

Bond prices retreated as investors regained their appetite for risk.

The dollar slumped after James Bullard, president of the Federal Reserve Bank in St. Louis, said the central bank should continue to buy mortgage-backed securities after the program is supposed to expire in March. That would continue to keep interest rates low.

Low interest rates and a resulting decline in the dollar have been big drivers behind the stock market’s eight-month rally. Low interest rates enable investors to borrow cheaply and buy assets like stocks and commodities that have the potential to earn higher yields than cash.

Investors were buying Monday on somewhat contradictory forces in the market. The strength in housing is a sign of an improving economy, which could argue in favor of raising rates, while the dollar’s weakness points to rates remaining low. Analysts say investors who still have plenty of available cash are primed to buy, and so the market is rising on its own momentum.

“There’s still $2 trillion of cash that needs to find its way into the stock market,” said Phil Orlando, chief equity market strategist at Federated Investors.

Orlando said investors will continue to look for dips in the rally as a way to get into the market, not wanting to end the year without participating in some of the big gains stocks have made.

“Bearish managers are sweating bullets that they’re not going to be able to get that cash in the market and they need to do that,” he said. “That is why any pullback we’ve seen this year has been met with a wave of cash that has pushed stocks up higher.”

At the same time, many portfolio managers have cooled their buying, not wanting to risk losing the big returns they’ve made since stocks began rallying in March. Those opposing forces are likely to result in choppy trading over the next few weeks, analysts said, which will be exacerbated by light volume as the holidays approach.

The Dow Jones industrial average rose 123.04, or 1.2 percent, to 10,441.20, making back the 120 points it lost over the previous three days. The Standard & Poor’s 500 index rose 14.58, or 1.3 percent, to 1,105.96, while the Nasdaq composite index rose 29.20, or 1.4 percent, to 2,175.24.

About five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 470.9 million shares, compared with 640.6 million at the same time on Friday.

The ICE Futures U.S. dollar index, a widely used measure of the dollar against other currencies, fell 0.7 percent in afternoon trading. As the dollar fell, gold prices surged to a new high of $1,174 an ounce. Oil prices rose 74 cents to $78.21 a barrel on the New York Mercantile Exchange.

Bond prices fell as investors moved back into stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.40 percent from 3.37 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.04 percent from 0.01 percent.

The yield on the three-month bill briefly dipped into negative territory last week as worries about the economy took hold and investors retreated to safe havens like the dollar and government debt as they sold stocks.

Investors wanting to lock in profits as the year comes to a close are willing to earn very little to park their cash in a safe place.

“Managers want to finish up the year on a positive note,” said Quincy Krosby, market strategist at Prudential Financial. “It’s not a time for taking chances.”

Outside of the weaker dollar, stocks got support from the strong report on housing.

The National Association of Realtors said home sales rose 10.1 percent in October to the highest level in two and a half years, spurred by a tax credit for first-time homebuyers. Analysts had been expecting a 1.4 percent increase in sales. The credit, which was due to end at the end of the month, was subsequently extended into 2010.

“You could be completely cynical and say this market is moving up today because volume is low and the dollar is weak, but I would have to add that we’re getting confirmation on the sustainability of the economic recovery by the actual fundamentals,” Krosby said, referring to the housing report.

The economic data, though, has largely been mixed. Last week, stocks sold off after an unexpected drop in home construction stirred worries about the strength of the recovery in housing. The Dow ended the week roughly flat, up 0.5 percent, while broader indexes fell.

In other trading, the Russell 2000 index of smaller companies rose 11.53, or 2.0 percent, to 596.21.

Overseas, Britain’s FTSE 100 rose 1.7 percent, Germany’s DAX index soared 2.4 percent, and France’s CAC-40 jumped 2.3 percent. Markets in Japan were closed for a holiday.