The stock market rebounded and closed more than 2 percent higher Wednesday after a stronger-than-expected increase in pending home sales restored investors' optimism about the economy.
The Dow Jones industrial average rose about 226 points, its third biggest gain of 2010. Major indexes recovered the losses they suffered Tuesday shortly before the close, when the government announced criminal and civil investigations into the Gulf oil spill.
Treasury prices fell, pushing up interest rates, after demand for riskier investments like stocks increased.
The upbeat report on home sales provided some hope on the nation's housing market. An increase in signed contracts for homes was due partly to a rush to meet a tax credit that expired in April. The National Association of Realtors said its index of signed contracts for existing homes rose 6 percent. The increase was ahead of the estimates of economists polled by Thomson Reuters.
"Anything that indicates more of a stabilization — and not rapid declines — in housing is probably a good thing," said Jason D. Pride, director of investment strategy at Glenmede in Philadelphia.
Beyond the housing numbers, stocks got a boost from a rebound in energy companies. The slide in energy stocks had pulled the market lower Tuesday. Schlumberger, which provides services to oil companies, rose more than 8.8 percent, while Baker Hughes climbed about 10.5 percent.
A rise in the euro from a four-year low Tuesday also drew buyers. Movements in the euro, which is used by 16 European countries, have often steered trading in the past month. The currency is seen as a reading on confidence in Europe's ability to contain a debt crisis that began in Greece, but has spread to other parts of Europe, including Spain and Portugal.
Stocks have been pounded in the last month by concerns that spending cuts in Europe would hobble a recovery in the global economy.
After reaching a 2010 peak in late April, the Dow fell 7.9 percent last month for its worst May since 1940. The market has been logging big swings because traders are trying to determine how deep the retreat in stocks will be. Analysts say the fractiousness isn't likely to disappear anytime soon.
"It's a symptom of a market that doesn't have a lot of conviction about where it's going yet," said Dr. Dorsey Farr, co-founder of financial adviser French Wolf & Farr in Atlanta.
According to preliminary calculations, the Dow rose 225.52, or 2.3 percent, to 10,249.54. It was the biggest point and percentage climb for the Dow since Thursday, when the index advanced 285 points, or 2.9 percent.
The Standard & Poor's 500 index rose 27.67, or 2.6 percent, to 1,098.38, while the Nasdaq composite index climbed 58.74, or 2.6 percent, to 2,281.07.
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