Stocks gain after a struggle

Dow and S&P 500 rise to new 9-month highs as market gets a lift from housing report.

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By Alexandra Twin, CNNMoney.com senior writer

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NEW YORK(CNNMoney.com) -- Stocks ended a choppy session higher Tuesday as a better-than-expected housing market report helped investors extend the recent rally, leaving Wall Street at more than nine-month highs.

The Dow Jones industrial average (INDU) added 33 points, or 0.4%, ending at its highest point since Nov. 4. The S&P 500 (SPX) gained 3 points, or 0.3%, also ending at the highest point since November.

The Nasdaq composite (COMP) gained 3 points, or 0.1%, ending at its highest point since Oct. 1.

Stocks have now gained Monday and Tuesday, starting off August on solid footing after the best July for the Dow and S&P 500 in two decades. Gains were driven by relief that the quarterly profit reports were generally better than expected and hopes that the economy is stabilizing.

"It's been a pleasant rally, and with near-record amounts of cash in money market funds, there's fuel to move it higher," said Rob Lutts, portfolio manager at Cabot Money Management.

Lutts said that investors are unwilling to accept low-yielding investments such as bonds, and the demand for better returns should keep lifting stocks.

The S&P 500 now stands 48% above the closing lows from March 9, a 12-year bottom. But after such a big run, stocks could see a short-term pullback before moving higher, said Alan Lancz, director of Lancz Global. Worries about Friday's jobs report could provide a catalyst for some selling. Beyond that, he said he thinks stocks will continue to rise through the summer.

"There are still so many people on the sidelines who bailed out in March," he said. "With improving economic numbers and some of the stimulus efforts starting to work, you have investors who feel like they are missing the train jumping in. That's likely to continue."

Wednesday brings a number of economic reports, including the July reading on private-sector employment from payroll services firm ADP and the Institute for Supply Management's services sector index. Dow component Procter & Gamble (PG, Fortune 500) reports quarterly results in the morning.

After the close Tuesday, Dow component Kraft Foods (KFT, Fortune 500) reported higher quarterly earnings that topped estimates and also lifted its 2009 earnings forecast.

Economy: The day's economic news was mixed, with a housing report showing improvement and a consumer income and spending report showing weakness.

The pending home sales index, from the National Association of Realtors, rose 3.6% in June versus forecasts for a rise of 0.7%. It was the fifth straight month of gain, the first time that's happened since 2003. Pending home sales rose a revised 0.8% in the previous month.

Personal income fell 1.3% in June, the Commerce Department reported Tuesday morning. That was worse than the 1% decline economists were expecting, according to a Briefing.com survey, and much worse than the previous month, when income surged on government stimulus efforts. Personal spending rose 0.4% in June, after a 0.1% increase in May. Economists thought it would rise 0.3%.

A separate report showed consumer bankruptcies soared 34% to a more than 3-1/2 year high versus a year ago, according to a report from the American Bankruptcy Institute.

Autos: One day after U.S. automakers reported July auto sales that improved from June levels, Toyota Motor (TM) reported a smaller-than-expected quarterly loss and said it expects smaller losses for the full year.

Automakers were able to report improved July auto sales largely due to Cash for Clunkers, the popular U.S. government program that provides a financial incentive for turning in a gas guzzler and buying a more fuel-efficient vehicle. The program is in danger of running out of money unless the Senate approves more funding.

Other company news: Homebuilder D.R. Horton (DHI, Fortune 500) reported a fiscal third-quarter loss that was narrower than what analysts were expecting.

Swiss bank UBS (UBS) reported a big quarterly loss that was worse than what analysts were expecting, as wealthy clients took a step back amid an ongoing tax dispute with the United States.

Among other movers, Dow component Caterpillar (CAT, Fortune 500) rallied 6% after the company's CEO reaffirmed the company's 2009 profit forecast, according to reports. He also outlined different scenarios for how the company might perform next year based on how long the recession stretches on.

In deals news, PepsiCo (PEP, Fortune 500) said it will buy its bottlers in a cash-and-stock deal worth $7.8 billion, improving on an earlier $6 billion bid. Shares gained 5.1%.

Oil: U.S. light crude oil for September delivery fell 16 cents to settle at $70.42 a barrel on the New York Mercantile Exchange. Oil prices have been climbing of late on bets that a global economic recovery will increase demand for raw materials.

COMEX gold for December delivery rose $10.90 to settle at $969.70 an ounce.

Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.68% from 3.63% late Monday. Treasury prices and yields move in opposite directions.

Other markets: In global trading, European markets ended lower and Asian markets ended mixed.

In currency trading, the dollar gained versus the euro and the Japanese yen.

Market breadth was positive. On the New York Stock Exchange, winners topped losers three to two on volume of 1.25 billion shares. On the Nasdaq, advancers beat decliners by four to three on volume of 2.29 billion shares. To top of page

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Updated 5:33 with final closing data