Stocks advance after mixed economic data

The third quarter is starting on a positive note for stocks after some reassuring economic data.

Major stock indexes were up nearly 1 percent Wednesday following a report showing more stable manufacturing activity in the United States. Investors also appeared pleased about a fourth straight monthly rise in pending home sales in May. European markets had risen earlier following similarly upbeat data on manufacturing in that region.

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 sharply 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 E. 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 anticipated. The most anticipated 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.

In late afternoon trading, the Dow Jones industrial average rose 78.30, or 0.9 percent, to 8,525.30. The Standard & Poor's 500 index rose 6.94, or 0.8 percent, to 926.26. The Nasdaq composite index rose 15.51, or 0.9 percent, to 1,850.55.

About four stocks rose for every one that fell on the New York Stock Exchange, where volume came to a lower-than-usual 610.6 million shares. Low volumes can lead to high volatility.

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

In corporate news, Citigroup Inc. sold NikkoCiti Trust and Banking Corp., part of its Japanese business, to Nomura Trust and Banking Co. 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.

In an upbeat earnings report, General Mills Inc. 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. Shares rose $1.98, or 3.5 percent, to $58.

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 Russell 2000 index of smaller companies rose 9.81, or 1.9 percent, to 518.09.

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

Light, sweet crude fell 54 cents to $69.35 a barrel on the New York Mercantile Exchange.

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