Stocks rebounded Wednesday after a stronger-than-expected increase in pending home sales restored investors' optimism about the economy.
The Dow Jones industrial average rose about 120 points at midday. The major indexes made back most of the losses they suffered Tuesday shortly before the close when the government announced criminal and civil investigations into the Gulf oil spill.
The upbeat report on home sales provided some hope on the nation's housing market. An increase in signed contracts for homes was due partly to a rush to meet a tax credit that expired in April. The National Association of Realtors said its index the measures the number of contracts on existing homes rose 6 percent in April. The increase was ahead of the estimates of economists polled by Thomson Reuters.
"Anything that indicates more of a stabilization — and not rapid declines — in housing is probably a good thing," said Jason D. Pride, director of investment strategy at Glenmede in Philadelphia.
Beyond the housing numbers, stocks got a boost after the euro held above the four-year low it hit on Tuesday. Movements in the euro, which is used by 16 European countries, have often steered trading in the past month. The currency is seen as a reading on confidence in Europe's ability to contain a debt crisis that began in Greece, but has spread to other parts of Europe, including Spain and Portugal.
In afternoon trading, the Dow rose 119.94, or 1.2 percent, to 10,143.96. The Standard & Poor's 500 index rose 15.21, or 1.4 percent, to 1,085.92, while the Nasdaq composite index climbed 31.17, or 1.4 percent, to 2,253.50.
Bond prices fell, pushing up interest rates, as investors felt more secure about buying riskier assets including stocks. The yield on the benchmark 10-year Treasury note rose to 3.31 percent from 3.27 percent late Tuesday.
Crude oil rose 92 cents to $73.50 per barrel on the New York Mercantile Exchange. Gold fell.
For the past month, traders have usually looked past upbeat economic reports while they worried about Europe. Analysts say the more recent figures are likely to draw attention because they are more reliable indicators of whether the issues in Europe will affect the U.S. in the future.
Traders are still jittery and could resume selling on one disappointing headline. That's what occurred Tuesday when the news about the oil spill inquiry erased the gains that had come from upbeat reports on manufacturing and construction spending.
Investors are now awaiting the Labor Department's monthly employment report, which is due Friday. It is widely regarded as the most important economic report each month because high unemployment remains a major obstacle to a sustained recovery. A strong report could provide relief for investors worried about a potential slowdown in the economy.
Economists predict the unemployment rate dipped to 9.8 percent in May from 9.9 percent in April and that employers added 513,000 jobs. Estimates vary widely because there remains some uncertainty about the pace of a jobs recovery. Weekly reports on initial claims have hovered close to 450,000 throughout the year, which is considered above the level that would indicate strong growth.
Among stocks, airlines rose following upbeat comments from analysts. Continental Airlines Inc. climbed $1.98, or 9.8 percent, to $22.27, while US Airways Group Inc. advanced 89 cents, or 10.3 percent, to $9.53.
Ford Motor Co. rose 33 cents, or 2.9 percent, to $11.74 after reporting that its U.S. sales rose 23 percent in May.
The Russell 2000 index of smaller companies rose 9.70, or 1.5 percent, to 650.66.
Britain's FTSE 100 fell 0.2 percent, while Germany's DAX index and France's CAC-40 each slipped less than 0.1 percent. Japan's Nikkei stock average fell 1.1 percent.