Rally on Wall Street

NEW YORK (CNNMoney.com) -- Stocks rallied Friday, with the Dow surging more than 140 points, as investors welcomed a pair of stronger-than-expected readings on the economy, including the July new home sales report.

The Dow Jones industrial average (up 142.99 to 13,378.87, Charts) and the broader S&P 500 (up 16.87 to 1,479.37, Charts) index both gained around 1.1 percent. The tech-fueled Nasdaq Composite (up 34.99 to 2,576.69, Charts) rose 1.4 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 by 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.

"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 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 Thursday, but Friday's upbeat economic news seemed to temper the concerns.

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 discount rate affects bank loans, while the fed funds rate affects consumer loans.

For the week, the Dow and S&P 500 both gained around 2.3 percent, while the Nasdaq gained almost 2.9 percent.

Volatility is likely to remain in the market for some time, particularly next week, when trading volume dips ahead of the long Labor Day weekend, said Alan Lancz, director of Lancz Global.

"Investors are not going to push stocks up too much, because they are waiting for another shoe to drop, and there won't be any big moves down, because they know the Fed is paying attention," Lancz said.

Gains were broad based, with 29 out of 30 Dow stocks rising, led by Alcoa (up $0.92 to $36.69, Charts, Fortune 500), Walt Disney (up $0.71 to $33.87, Charts, Fortune 500), Boeing (up $1.73 to $98.47, Charts, Fortune 500), Intel (up $0.56 to $24.79, Charts, Fortune 500) and Microsoft (up $0.51 to $28.81, Charts, Fortune 500).

Dow component Home Depot (up $0.66 to $34.68, Charts, Fortune 500) rose nearly 2 percent even though reports that a sale 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 $0.57 to $43.74, 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 $1.86 to $68.14, Charts, Fortune 500), BP (up $1.16 to $67.04, Charts) and Sunoco (up $1.48 to $71.16, Charts, Fortune 500).

In other news, Gap (up $1.11 to $18.51, 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.

Also, AnnTaylor Stores (up $2.79 to $32.43, Charts) reported higher-than-expected quarterly earnings and kept its 2008 earnings outlook unchanged, sending shares 9.4 percent higher.

On the downside, Marvell Technology (down $2.10 to $15.75, Charts) dropped more than 11 percent in active trade after reporting a quarterly loss late Thursday, versus a profit a year ago.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by more than 3 to 1 on volume of 1.18 billion shares. On the Nasdaq, advancers beat decliners 2 to 1 on volume of 1.66 billion shares.

Treasury prices rose, lowering the yield on the 10-year note to 4.61 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 $1.26 to settle at $71.09 a barrel on the New York Mercantile Exchange.

COMEX gold rose $9.10 to $677.50 an ounce.