Better news on jobs and consumer spending pushed stocks higher Thursday.
The Dow Jones Industrial Average and the Standard & Poor's 500 index rose for a third straight day. Bond yields fell for a second day, easing worries that a sudden spike in interest rates could hurt the economy.
Consumer spending rose 0.3 percent last month as incomes increased at the fastest pace in three months, the government reported. The number of Americans seeking unemployment benefits fell 9,000 to 346,000 last week. The report added to evidence that the job market is improving modestly.
Stocks have rallied since Tuesday as investors took advantage of lower prices after a sell-off that lasted till Monday. The plunge came after Federal Reserve Chairman Ben Bernanke said that the central bank could cut back on its stimulus later this year and possibly end it next year, if the economy continued to improve.
The Dow sank 560 points over Wednesday and Thursday of last week. Even with the gains this week the index is still 293 points below where it was June 18, the day before the Fed laid out its plans for how it might wind down its stimulus.
The central bank is buying $85 billion in bonds every month to hold down long-term interest rates and encourage borrowing and spending. Fed stimulus has underpinned a stock market rally that started in March 2009 by encouraging investors to put money into risky assets.
"What's driving that market up is that people are realizing that they are in a 'win-win' situation," said Rick Robinson, a regional Chief Investment Officer at Wells Fargo Private Bank. "If you have good economic data that should be good for stocks, if you have poor economic data ... that means the Fed will probably have its (stimulus) longer."
The Dow closed up 114.35 points, or 0.8 percent, to 15,024.49. The S&P 500 index climbed 9.94 points, or 0.6 percent, to 1,613.20.
Nine of the 10 industry groups in the S&P 500 rose, led by financial stocks. Materials companies were the only group that fell.
In a sign that investors were once again more confident in holding riskier assets, the Russell 2000 index of small-company stocks rose 16.09 points, or 1.7 percent, to 979.92, more than twice as much as the rest of the market.
The yield on the 10-year Treasury note fell to 2.48 percent from 2.54 percent late Wednesday. The yield climbed as high 2.66 percent on Monday, the highest since August 2011. The rate has surged since May 3, when it touched its low for the year of 1.63 percent. Concern that the Fed is poised to start pulling back on its stimulus prompted investors to sell bonds, pushing the yield higher.
Investors who have added bonds to their portfolios at the expense of stocks should consider reducing their fixed income holdings because yields are likely to rise further, said Doug Cote, chief market strategist at ING Investment Management. Bonds rallied from 2007 to 2012, years that encompassed the financial crisis and the Great Recession. The yield on the 10-year Treasury note fell to a record low of 1.39 percent in July last year.
"For the first time in five years, equities are the safest asset class," Cote said.
Higher yields on Treasury bonds translate into higher borrowing costs on many kinds of loans including home mortgages. Average U.S. rates on fixed mortgages surged this week to their highest levels in two years. Mortgage buyer Freddie Mac said Thursday that the average rate on the 30-year loan jumped to 4.46 percent. That's up from 3.93 percent last week and the highest since July 2011.
Higher rates have yet to slow the housing market. Homebuilders got a lift from a report Thursday suggesting that the housing recovery remains intact. The number of people who signed contracts to buy U.S. homes jumped in May to the highest level in more than six years.
D.R. Horton rose 79 cents, or 3.8 percent, to $21.71. Lennar gained $1.37 cents, or 3.8 percent, to $37.38.
Investors were also encouraged by comments from a key Fed official. Federal Reserve Bank of New York President William Dudley said the central bank would likely keep buying bonds if the economy failed to grow at the pace the Fed was expecting.
"If labor market conditions and the economy's growth momentum were to be less favorable than in the (Fed's) outlook_and this is what has happened in recent years_I would expect that the asset purchases would continue at a higher pace for longer," Dudley said at a news conference in New York.
While the S&P 500 index is on track to record its first monthly loss since October, the index is still poised to end June with the best first half of a year since 1998, when it rose 17.7 percent. The index has gained 13.2 percent so far this year.
The market will likely become more volatile though in the second half of the year as investors assess when the Fed will end its stimulus, said Kate Warne, investment strategist at retail brokerage firm Edward Jones.
"The general outlook for the economy is solid," said Warne. "The trend in stock prices is likely to continue to be higher, even though we'll see a lot more zig-zagging as everyone debates the timing of the Fed's next move."
In commodities trading, the price of oil rose $1.55, or 1.6 percent, to $97.05 a barrel. Gold fell $18.20, or 1.5 percent, to $1,211.60 an ounce. The price of the precious metal has plunged more than 10 percent in the last two weeks. Gold traded below $1,200 for the first time since August 2010.
In other trading, the Nasdaq composite rose 25.64 points, or 0.8 percent, to 3,401.86.
The dollar fell against the euro and the Japanese yen.
Among stocks making big moves:
— ConAgra Foods rose $1.69, or 5.1 percent, to $35.04 after the company posted a quarterly profit that came in a penny above the forecasts of Wall Street analysts. The maker of Chef Boyardee, Hebrew National and other packaged foods benefited from acquisitions and price cuts that helped increase sales.
—Payroll processor Paychex fell $1.39, or 3.7 percent, to $36.60 after posting earnings that fell short of analysts' expectations. The company said profit for the three months through May 31 came in roughly flat at 34 cents per share. Analysts had expected earnings of 37 cents a share.
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