- Associated Press - Thursday, July 22, 2010

NEW YORK (AP) — Stocks surged Thursday after another strong batch of earnings reports revived optimism about the economic recovery. Encouraging signs of growth in Europe added to the upbeat mood.

The Dow Jones Industrial Average rose more than 200 points in afternoon trading. Broader indexes also rose more than 2 percent. Interest rates surged in the Treasury market as investors felt less need to put their money into the safety of government securities.

Traders largely wrote off a jump in the number of people seeking unemployment benefits for the first time. The increase was likely skewed by seasonal factors. Instead, investors focused on earnings from a broad range of companies that showed businesses aren’t seeing a slowdown in the recovery. News of corporate deals also lifted shares.

Caterpillar Inc., 3M Co., UPS Inc. and AT&T Inc. all topped earnings forecasts and raised their outlooks for future profit. Only Travelers reported a dip in earnings, but that came as bad weather led to more claims payments.

Investors who have been selling stocks on disappointing earnings and revenue figures over the past week got some reassurance from companies’ outlooks on Thursday. Caterpillar said its orders are growing and production will pick up in the second half of the year. UPS raised its outlook because of spending by businesses. Caterpillar’s stock rose 2.1 percent, while UPS gained 5.9 percent.

Chris Hobart, founder of Hobart Financial Group in Charlotte, N.C., said the outlooks are especially important because if companies expect to grow, that might get them to ramp up hiring.

If improved outlooks lead to jobs growth, “then this can be better than a good quarter or good second half, (it can mean) we’ve got a good economy,” Mr. Hobart said.

More earnings are due out later in the day, including from American Express Co., Microsoft Corp. and Amazon.com Inc.

In afternoon trading, the Dow Jones Industrial Average rose 206.54, or 2 percent, to 10,327.37. The Standard & Poor’s 500 index rose 23.66, or 2.2 percent, to 1,093.25, while the Nasdaq composite index rose 52.55, or 2.4 percent, to 2,239.88.

Nearly seven stocks rose for every one that fell on the New York Stock Exchange, where volume came to 565.6 million shares.

European markets rose after a report showed unexpected growth in the 16-nation group that uses the euro. In recent months, investors worldwide have been concerned that rising government debt in Europe would stall a global recovery. A jump in Europe’s purchasing managers index reported Thursday was a welcome relief after forecasts of a possible recession on the Continent.

The economic reports out of Europe were “a big surprise because everyone expects that to be the Achilles’ heel of the global economy,” said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management in New York.

The market’s gains Thursday came a day after investors sold stocks because Federal Reserve Chairman Ben S. Bernanke warned Congress that the economy remains fragile. Bernanke confirmed investors’ fears that the best scenario for the economy is only slow growth and relatively high unemployment. Mr. Bernanke testified again before Congress on Thursday.

Stock trading has been erratic for weeks as investors were quick to sell at any signs of bad news and just as eager to buy on signs of optimism. The Dow has moved by at least 100 points in just over half the trading days since it hit its 2010 high of high for the year on April 26.

Guy LeBas, chief fixed income strategist of Janney Montgomery Scott in Philadelphia, said there are two groups fighting back and forth, which has led to the volatility. One believes the economy is going to fall back into recession, while the other thinks this is just a pause in a strong rebound.

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