Stocks rise amid mixed economic data

Stocks extended their gains Thursday with a modest advance as investors weighed fresh economic data, including a sharp drop in new home sales, for clues to whether more interest rate cuts are in the offing.

The Commerce Department's report that sales of new homes plunged 8.3 percent in August to the lowest level in seven years was the latest round of bad news for the housing sector, but its arrival didn't spook investors. Instead, stocks built on the sizable gains logged Wednesday.

Concerns that housing market ills could drag the broader economy into a recession have periodically bubbled up in recent months. However, with the Fed's larger-than-expected rate cut last week, investors appeared hopeful that the central bank's move to make capital cheaper would provide adequate stimulus to stave off a broad slowdown.

And with the final trading day of the quarter arriving Friday, investors were likely buying to dress up their portfolios.

"You have positioning for the family photo," said Erik Davidson, senior director of investments at Wells Fargo Private Bank. He noted that as investors go about the usual business of shoring up their positions for the end of the quarter, some have been surprised that there hasn't been more bad news about tightness in the credit markets or about investments soured by bad mortgages.

"It's almost a return to normalcy. This is a bit of a relief rally, and the bad things that people are afraid of aren't really happening," he said of gains in recent sessions.

In the final hour of trading, the Dow Jones industrial average rose 34.95, or 0.25 percent, to 13,913.10.

Broader indexes also advanced. The Standard & Poor's 500 index rose 6.77, or 0.44 percent, to 1,532.19, and the technology-heavy Nasdaq composite index rose 11.98, or 0.44 percent, to 2,711.01.

Bond prices rose, pushing the yield on the benchmark 10-year Treasury down to 4.57 percent from 4.62 percent at Wednesday's close. Bond prices and yields move in opposite directions.

Recurring problems in the housing industry were reflected by KB Home, which said it expects the industry will continue to suffer through next year. The Los Angeles-based home builder reported before the opening bell that it swung to a loss in the third quarter.

The U.S. economy was a little softer during the second quarter than earlier estimated, according to a government report. The Commerce Department said gross domestic product expanded at a 3.8 percent annual rate in the second quarter - less than the previously reported 4 percent increase.

However, there was some strong news about the nation's labor force. Jobless claims fell 15,000 to 298,000 in the week ended Sept. 22 - the lowest level since May and an indication the labor market is still healthy.

These reports followed others issued this week that suggested the economy remains sluggish, which could persuade policymakers to lower rates further when they meet next month. Lower rates make cash cheaper to borrow, so they tend to fuel spending and merger-and-acquisition activity.

The dollar was mixed against other major currencies, while gold prices edged higher.

Crude oil prices rose as a tropical depression near Mexico raised concerns about possible disruptions to oil and gas production. A barrel of light sweet crude rose $2.58 to settle at $82.88 a barrel on Thursday on the New York Mercantile Exchange.

"The fact that the Fed has cut a half point, I think it shows that they are willing to act. That is one of the most important things in that it gives the investor community reason to act," said Dave Hinnenkamp, chief executive KDV Wealth Management in Minneapolis. "I think one of the more important factors with regard to where we go from here is the upcoming earnings season."

Often investors buy and sell stocks at quarter's end in order to square away their portfolios, with some trying to hold the quarter's winners.

In corporate news, KB Home posted a third-quarter loss, but it was narrower than analysts expected. Its shares rose 11 cents to $24.20.

Sallie Mae, the nation's largest student lender and officially known as SLM Corp., rose $3.90, or 8.6 percent, to $48.90 after a group of investors that had planned to acquire the company said it wants out of the deal, leading to speculation that the lender might be able to fetch new terms for a buyout.

Hinnenkamp noted that with the Dow fewer than 100 points below its mid-July high of 14,000, investors could be gaining confidence in the market's rebound.

"A lot of it has to do with people sitting on the sideline with some cash when the market was coming down. And now that they've seen it bounce up, I think some of it has to do with people diving back into the market not wanting to miss the rally," he said.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 955.3 million shares.

The Russell 2000 index of smaller companies rose 4.30, or 0.53 percent, at 813.43.

In European trading, Britain's FTSE 100 closed up 0.83 percent, Germany's DAX index rose 0.64 percent, and France's CAC-40 rose 0.75 percent. In Asia, Japan's Nikkei index and Hong Kong's Hang Seng Index each closed up 2.4 percent.