- Associated Press - Tuesday, May 28, 2013

NEW YORK (AP) — A rally that that brought the stock market to record highs this year came back to life after U.S. home prices rose the most in seven years and consumer confidence reached a five-year high.

The Dow Jones industrial average climbed as much as 218 points during morning trading Tuesday, bouncing back from a loss the week before. The Dow gave back about half of the gain by early afternoon and was up 101 points shortly before 2 p.m. EDT.

The yield on the 10-year Treasury note rose to 2.11 percent, its highest level since April 2012, as investors moved money out of safe assets and into riskier ones such as stocks.

The jump in home prices reinforced a theme that has been a major factor behind the surge in stocks this year: a strong recovery in the housing market.

“They say the stock market tends to lead the economy. Now we’re starting to see the improvement on the economic front, so there’s some justification for this rally,” said Ryan Detrick, a senior technical strategist at Schaeffer’s investment research.

The market is coming off a rare loss last week, when both the Dow and the Standard & Poor’s 500 index had their first losing weeks in a month. Investors worried that the Federal Reserve might slow its extraordinary economic stimulus measures, which also have supported the stock market’s advance.

SEE ALSO: U.S. home prices rise 10.9 percent, the most since 2006

Homebuilder stocks rose Tuesday after the Standard & Poor’s/Case-Shiller survey, which was released before stock trading opened, found that U.S. home prices rose 10.9 percent in March, the most since April 2006. A growing number of buyers are bidding on a tight supply of homes. Beazer Homes jumped 63 cents, or 3 percent, to $21.96.

Stocks extended their gains after the Conference Board reported at 10 a.m. EDT that its measure of consumer confidence rose in May to its highest level since February 2008.

The Dow was up 101 points, or 0.7 percent, to 15,405 as of 1:57 p.m. EDT. If the Dow finishes the day higher, it will end have closed higher for 20 straight Tuesdays, according to Schaeffer’s investment research.

The S&P 500 index rose nine points, or 0.6 percent, to 1,658. The Nasdaq composite index climbed 25 points, or 0.7 percent, to 3,483.

The gains were broad. Eight of the 10 industry groups in the S&P 500 index rose, led by financial stocks. The only ones that fell were utilities and telecommunication stocks, which investors tend to buy when they’re seeking stable, safe stocks that pay high dividends. All but three of the 30 stocks in the Dow Jones industrial average rose.

The Dow has advanced 17.8 percent this year, and the S&P 500 index is 16.5 percent higher as investors have piled into stocks.

Unlike the first three months of the year, when the biggest gains were in large, stable companies such as consumer-staples manufacturers that pay big dividends, in recent weeks investors have been bidding up the stocks of companies that have more to gain if the economy strengths. That shift out of lower-risk stocks and into more “cyclical” stocks, such as banks and industrial companies, means investors are becoming more aggressive in seeking returns and more comfortable taking on risk.

Another bullish signal for the market is the strong growth in small-company stocks. Those stocks have a greater potential for growth but also tend to carry greater risk than large, diversified companies. The preference for small stocks was on display again Tuesday as the Russell 2000 index of small-company stocks rose 1.2 percent, more than other market indexes, to 995 points, a gain of 11 points. Its year-to-date increase of 17.2 percent is 1 percentage point greater than that of the S&P 500.

Bond prices fell, and their yields rose. The yield on the benchmark 10-year Treasury note rose to 2.11 percent from 2.01 percent late Friday. Markets were closed Monday for Memorial Day.

The longer-term outlook for bonds is bleak as rising inflation eventually will lead to higher interest rates, said Tim Courtney, chief investment officer at Exencial Wealth Advisors. Despite climbing this year, the yield on the 10-year note is still close to the record low of 1.39 percent that it reached in July 2012, when demand for Treasuries surged as the European debt crisis intensified.

“The only way that bonds can make money from here is if we go a prolonged period of time with very, very low inflation and rates just don’t move up a whole lot at all,” Mr. Courtney said. “Under any other scenario they lose.”

Among other stocks making big moves:

• Tiffany rose $3.23, or 4.2 percent, to $79.44 after the high-end jewelry seller said its first quarter net income rose 3 percent as sales improved across all regions. The results beat the forecasts of Wall Street analysts.

• Tesla Motors jumped $7.23, or 7.5 percent, to $104.30. Last week the electric-car manufacturer raised almost $1 billion from a bond-and-stock offering and paid off a government loan nine years early. The company also is set to announce this week that it’s adding to a network of car-charging stations.

• Electricity company FirstEnergy dropped 7.5 percent, or $3.19, to $39.45 after Credit Suisse stripped the company of its ‘outperform’ rating, saying that a glut of energy would push down prices the company is able to charge.

Traders were encouraged by gains in overseas markets. Japan’s benchmark Nikkei rose 1.2 percent. The index had plunged 7.3 percent Thursday on concerns about Japan’s massive economic stimulus program. European markets also rose. Britain’s FTSE 100 jumped 1.6 percent, and Germany’s DAX gained climbed 1.2 percent.

In commodities trading, the price of oil rose $1.18, or 1.2 percent, to $95.35. Gold fell $7.70, or 0.6 percent, to $1,378.90 an ounce. The dollar gained against the euro and the Japanese yen.



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