Stocks rise in morning trade

NEW YORK (CNNMoney.com) -- Stocks rallied Wednesday afternoon after a better-than-expected report on the services sector of the economy and more talk of a bailout for bond insurer Ambac helped soothe worries about the economic slowdown.

Oil spiked to an all-time record above $104 a barrel, but it failed to deter the stock advance.

The Dow Jones industrial average (INDU) gained 0.6% about 3 hours into the session. The broader Standard & Poor's 500 (SPX) index added 0.8% and the Nasdaq composite (COMP) rose 0.9%.

The Institute for Supply Management's services sector index rose to 49.3 in February from a prior read of 44.6. Economists surveyed by Briefing.com thought it would rise to 47.5. While the report beat forecasts, it still showed weakness in the sector, with any reading below 50 signaling a slowdown.

Nonetheless, the report was a relief to investors after a recent series of weaker-than-forecast readings on the economy, including the ISM's manufacturing index on Monday.

Other morning economic news was less positive, including a reading on employment. Private sector employment fell 23,000 in February versus forecasts for a rise of 15,000, according to a monthly report from payroll services firm ADP. Private-sector employment rose a revised 119,000 in the previous month. The report was perhaps a bad indication for the bigger government employment report due Friday.

Another report showed factory orders tumbled 2.5% in January, as expected, after rising 2% in the previous month.

Fourth-quarter productivity rose a bigger-than-expected 1.9%, a positive. But the report's inflation component, unit labor costs, rose a surprisingly large 2.6%, the government said.

Sentiment was also helped by a CNBC report that banks negotiating a deal to keep bond insurer Ambac Financial afloat could finish ironing out the details today. The deal would give Ambac enough funding to hold on to its top-tier rating. Without that, Ambac would have trouble generating new business and could add another wave of uncertainty to an already strapped financial market.

Ambac (ABK) and competitor MBIA (MBI) gained, along with a number of other financial stocks.

Company news. Morgan Stanley upgraded Fannie Mae to "equal weight" from "underweight" saying the tepid outlook for the fourth quarter has been reflected by the stock. Regardless, Fannie Mae (FNM) shares dropped nearly 4%. Fellow government-sponsored mortgage backer Freddie Mac (FRE, Fortune 500) slipped as well.

Big Lots (BIG, Fortune 500) reported weaker fourth-quarter profit that nonetheless topped forecasts and also projected first-quarter and fiscal year guidance that is above estimates. Shares jumped 22%.

Meanwhile the spike in oil prices gave a boost to Exxon Mobil (XOM, Fortune 500) and various other energy stocks, boosting the Amex Oil index by 1.7%.

Other markets U.S. light crude oil for April delivery rose $4.43 to $103.95 a barrel on the New York Mercantile Exchange after the weekly oil inventories report showed a drop in crude supplies. Earlier, oil had hit an all-time trading high of $104.56 a barrel.

Also influencing oil prices: news that OPEC has decided to hold production levels steady, despite record oil prices.

COMEX gold for April delivery rose $10.70 to $977 an ounce.

Treasury prices slumped, raising the yield on the benchmark 10-year note to 3.67% from 3.61% late Tuesday. Bond prices and yields move in opposite directions.

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