Stocks struggle to rise

NEW YORK (CNNMoney.com) -- Stronger-than-expected readings on the economy, including July new home sales, sent stocks higher Friday morning, yet gains were limited by higher oil prices and ongoing worries about the tightening credit markets.

The Dow Jones industrial average (up 17.56 to 13,253.44, Charts) added 0.2 percent around two hours into the session. The broader S&P 500 (up 1.38 to 1,463.88, Charts) index also gained 0.2 percent. The tech-fueled Nasdaq Composite (up 3.61 to 2,545.31, Charts) saw smaller gains.

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Stocks started the day with small losses, before turning higher following 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.

In corporate news, Home Depot (up $0.49 to $34.51, Charts, Fortune 500) rose 1.5 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.

On the corporate front, Gap (up $0.90 to $18.30, 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 over 3 percent Friday morning.

Market breadth was positive. On the New York Stock Exchange, winners beat losers three to two on volume of 400 million shares. On the Nasdaq, advancers beat decliners by a narrow margin on volume of 550 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 $1.02 to $70.85 a barrel on the New York Mercantile Exchange.

COMEX gold rose $3.60 to $672 an ounce.