Wall Street cheers home sales gain

NEW YORK (CNNMoney.com) -- Stocks jumped Friday afternoon as investors welcomed a pair of stronger-than-expected readings on the economy, including July new home sales.

The Dow Jones industrial average (up 75.12 to 13,311.00, Charts) added 0.6 percent with around 2-1/2 hours left in the session. The broader S&P 500 (up 8.99 to 1,471.49, Charts) index also gained 0.6 percent. The tech-fueled Nasdaq Composite (up 17.25 to 2,558.95, Charts) rose 0.7 percent.

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Stocks started the day with small losses amid ongoing worries about the tightening credit markets. But the tone turned positive in mid-morning after the release of the housing report.

July new home sales rose 2.8 percent to an 870,000 annual sales pace, beating forecasts for a drop to 825,000. In addition, the reading on June new home sales was revised upward.

The housing report was certainly encouraging to investors who have been worried about how the implosion in that market would impact the economy, said Kenny Landgraf, principal and founder of Kenjol Capital Management. However, he said that looking ahead, home sales are likely to fall further because of the credit crunch.

An earlier report showed that July durable goods orders jumped 5.9 percent, easily topping economists' forecasts for a rise of 1.4 percent.

Stocks have had a good week, following a rough period on Wall Street in which investors have bailed out of equities on worries about the subprime mortgage market and the credit crunch.

Dour comments by the CEO of troubled mortgage lender Countrywide Financial revived investor worries about these factors Friday.

Volatility is likely to remain until there is more clarity on the issue.

"It's like the lights went off, and everybody is searching for flashlights as to where this thing is going," said Landgraf. "Every piece of information is being looked to, whether it's home sales, what the economy is doing, what the Fed implies."

Stocks have had a better week in part because of hopes that the Federal Reserve will cut the fed funds rate at its Sept. 18 policy meeting. The bets were raised after the central bank cut its discount rate one week ago - the rate that effects bank loans.

Gains were broad based, with 24 out of 30 Dow stocks rising, led by Alcoa (up $0.72 to $36.49, Charts, Fortune 500), Walt Disney (up $0.48 to $33.64, Charts, Fortune 500), IBM (up $1.07 to $112.52, Charts, Fortune 500), Intel (up $0.46 to $24.69, Charts, Fortune 500) and Microsoft (up $0.34 to $28.64, Charts, Fortune 500).

Dow component Home Depot (up $0.41 to $34.43, Charts, Fortune 500) rose 1 percent even amid reports that a sales of its wholesale supply division remains in question, due to the reluctance on the part of investment banks, even amid a lower price.

Dow component Wal-Mart Stores (up $0.38 to $43.55, Charts, Fortune 500) rose on rumors that government-run investment funds in China and Singapore could be looking at the retailer's stock, Reuters reported.

A run up in oil prices boosted shares of Dow component Exxon Mobil, as well as other oil services companies including Valero Energy (up $1.69 to $67.97, Charts, Fortune 500), BP (up $0.91 to $66.79, Charts) and Sunoco (up $1.29 to $70.97, Charts, Fortune 500).

On the corporate front, Gap (up $1.02 to $18.42, Charts, Fortune 500) reported quarterly earnings late Thursday that topped estimates, on revenue that missed estimates. Gap also boosted its fiscal 2008 earnings guidance. Shares gained 5 percent.

Market breadth was positive. On the New York Stock Exchange, winners beat losers two to one on volume of 6210 million shares. On the Nasdaq, advancers beat decliners four to three on volume of 940 million shares.

Treasury prices rose, lowering the yield on the 10-year note to 4.62 percent from about 4.64 percent late Thursday. Bond prices and yields move in opposite directions.

In currency trading, the dollar slipped versus the euro and the yen.

U.S. light crude oil for October delivery rose $1.22 to $71.05 a barrel on the New York Mercantile Exchange.

COMEX gold rose $8.60 to $677 an ounce.